If you are born before 1 January 1983, you’re officially older than the internet, according to USA Today.
Now, that’s a fact that will leave today’s kids dumbfounded.
In case you think that 1983 is akin to the internet stone age, consider this: if you are born before 4 September 1998, you pre-date the birth of Google, the search engine used by nine out of every 10 netizens today.
What’s more, one day, we will all be able to tell our kids or grandkids that we were born before ChatGPT, the hottest new tool on the internet today.
Here’s the point we want to make: no matter what age you are, there are always new growth trends emerging as we speak.
Side note: We tested ChatGPT in our December Get Smart HERE.
The rise of Generative AI
According to analytics firm UBS, ChatGPT exceeded over 100 million monthly active users in January, surpassing the early growth rate of previous popular apps such as TikTok.
The excitement over the generative-AI trend is at feverish levels.
CBInsights noted that equity funding for generative AI startups topped US$2.6 billion in 2022, over 70% higher compared to the previous year.
Leading the way, of course, is OpenAI, the creator of ChatGPT, which has signed a reported multi-billion dollar deal with tech giant Microsoft (NASDAQ: MSFT).
While OpenAI brings the innovative spark, Microsoft promises to implement the AI-powered tool across its suite of products including Microsoft Teams, Microsoft Word, Outlook, Bing Search, Xbox Cloud Gaming and more.
Without a doubt, generative AI is one of the most promising trends to emerge post-pandemic.
Yet, as investors, we may want to temper expectations.
What’s more likely to happen is that losers will exceed winners in this new, fast-growing space. Investing with a high level of uncertainty is best managed by controlling the amount of cash we have allocated to the trend.
That’s why, at the Smart All Stars Portfolio, we dedicate a segment called Trailblazers to new, unproven ideas.
To manage risk, we have guardrails to prevent this segment from growing too big.
By sizing the segment’s allocation carefully, we aim to capture the best of both worlds, by participating in the potential growth runway without getting carried away.
From flowers to bouquets
“We’ve let a thousand flowers bloom; now we want to put together a coherent bouquet.”
— Google co-founder, Sergey Brin
Meanwhile, there are other growth areas that are further down the road compared to ChatGPT.
For instance, 2020 and 2021 have seen a record number of new software-as-a-service (SaaS) companies going public.
Since then, SaaS growth has tapered off in 2022.
Yet, despite the slowdown, SaaS firms have proven themselves to be more sustainable business models compared to nascent trends such as cryptocurrencies.
In fact, many SaaS firms remain cash rich with positive free cash flow.
Here’s the difference: as an industry matures, it may be ripe for consolidation and industrial customisation, (also known as verticalisation).
Already, stalwarts such as Salesforce (NYSE: CRM) are gobbling up smaller SaaS companies such as Tableau, Mulesoft and Slack.
At the same time, we should expect vertical SaaS solutions to become commonplace.
Unlike generic, horizontal SaaS solutions which are unable to cover every industry need, vertical SaaS companies offer a path for SaaS businesses to deepen industry penetration by creating solutions tailored for the specific sector.
When done well, the returns can be pleasing.
For instance, life-science platform Veeva Systems (NYSE: VEEV) went public back in 2013 at US$20 per share. With the share price at almost US$170 today, investors have been richly rewarded for their patience.
Insights to key developments such as the above are something we offer our members.
At the Smart All Stars Portfolio, we go beyond the surface and conduct deep dives into growth industry trends to give our members a broad, updated view of the latest trends.
Trends we have looked at include cloud computing and fintech.
Get Smart: Paying attention
After the massive decline in 2022, some may see growth stocks as a lost cause.
Some of you may have sworn off this breed of stocks after suffering painful share price declines.
That’s understandable, of course.
But for those who are paying attention, you’ll know the above is far from the truth.
It boils down to what you believe for the future.
Extending your time horizon helps.
Think about it ….
Will there be more online retail or less? Will payments be done electronically or will we go back to using cold, hard cash? Will more business be conducted using cloud-powered tools, or less? Will we be using more AI-powered tools, or less?
… the answer is obvious.
There is nothing more exciting than seeing what’s coming just around the corner, putting money behind it and getting rewarded by our stocks over time.
That’s what I have been doing for the past 18 years, being an early investor in companies such as Netflix (NASDAQ: NFLX), Alphabet (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN) and Apple (NASDAQ: AAPL).
These are multi-billion or even trillion-dollar businesses today but a decade or more ago, they were much smaller companies.
Finding early winners requires you to pay attention to the right trends, coupled with a healthy dose of patience.
How do you decide if a growth stock is worth your money? There is no shortage of stock ideas today, but is a particular stock suitable for you? Find out more in our latest FREE report, How To Find The Best US Growth Stocks For Your Portfolio. Click HERE to download the report for free now!
Disclosure: Chin Hui Leong owns all the stocks above.