This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Many investors look toward the tech sector for potential millionaire-maker stocks. But for every stock like Nvidia, which minted new millionaires, there are plenty of stocks like Intel which shrivelled over the past decade.
So if you're looking for the next Nvidia and trying to avoid the next Intel, you should look for companies that are establishing an early mover's advantage in their nascent markets, growing rapidly, widening their moats, and outlasting their competitors. I believe these three stocks fit that description: IonQ (NYSE: IONQ), Opendoor (NASDAQ: OPEN), and DigitalOcean (NYSE: DOCN). Here's how these three stocks can eventually become millionaire makers.
1. IonQ
IonQ is a provider of cloud-based quantum computing services. Quantum computers store binary bits of zeros and ones simultaneously in "qubits," which enable them to process data faster than traditional computers which process those bits individually. Quantum computers can be used to accelerate a wide range of tasks, but they're big, expensive, and make more errors than binary CPUs. IonQ aims to resolve those issues with a "trapped ion" miniaturisation process which shrinks the average width of a quantum processing unit (QPU) from a few feet to a few inches.
By miniaturising and scaling up those systems, IonQ aims to reduce the costs of quantum computing and improve the accuracy of the devices' calculations. From 2021 to 2023, its revenue rose from just $2 million to $22 million. From 2023 to 2026, analysts expect its revenue to grow at a compound annual growth rate (CAGR) of 89% to $148 million.
IonQ expects to keep expanding as it gains new customers, acquires smaller companies, and increases its own quantum computing power. It's still bleeding red ink and its stock is expensive at 47 times its 2026 sales, but it's gradually establishing an early mover's advantage in the nascent quantum computing market. If it maintains that lead, its stock could skyrocket as more companies use its quantum computing services.
2. Opendoor
Opendoor is an online "iBuyer" (instant buyer) that makes instant cash offers for homes, fixes them up, and relists them for sale on its first-party marketplace. That digital home-flipping business model streamlines the home-selling process, but it's a capital-intensive business that is highly exposed to rising interest rates. The iBuying model is also heavily dependent on AI-powered pricing, but those algorithms can sometimes misprice its properties.
Inflation and supply chain constraints can also make it expensive and challenging to renovate all of its purchased properties. That's why the online real estate listing platforms Zillow and Redfin both shut down their first-party iBuying platforms in 2022.
But with Zillow and Redfin out of the picture, Opendoor is now the largest remaining iBuyer. Its revenue plunged 55% in 2023 as rising interest rates chilled the housing market, and analysts expect another 28% decline in 2024. That near-term outlook seems bleak, but they expect its revenue to grow at a CAGR of 27% from 2024 to 2026 as interest rates decline and the housing market warms up again.
Opendoor will likely stay unprofitable for the foreseeable future, but its stock looks dirt cheap at 0.3 times this year's sales. If it finally gets its act together as the macro environment improves, its stock could generate millionaire-maker gains for its patient investors.
3. DigitalOcean
DigitalOcean is a cloud infrastructure platform provider that carves out tiny "droplets" of individual servers for smaller customers at lower prices than enterprise cloud giants like Amazon or Microsoft. Its acquisition of Paperspace last year also added GPU-powered AI capabilities to its servers.
The bears claimed DigitalOcean would struggle to grow in the shadow of Amazon, Microsoft, and other cloud infrastructure giants. But from 2020 to 2023, its revenue grew at a CAGR of 30%. It also turned profitable in 2023 as it streamlined its spending.
From 2023 to 2026, analysts expect its revenue and EPS to grow at CAGRs of 13% and 85%, respectively. That growth should be driven by the growing demand for its cloud infrastructure and AI services from smaller businesses and individual developers. DigitalOcean's stock isn't cheap at 47 times next year's earnings, but the dominance of its niche market and improving profitability could justify its premium valuation and drive it even higher.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
