Breakthrough Theory: Investing in Today’s Tech Stocks
In 1962, sociologist E.M. Rogers came up with his “Diffusion of Innovation” theory.
It’s one of the oldest social science theories.
And during the past several decades, it’s provided an extremely profitable blueprint for investors… particularly now.
Rogers’ theory breaks down the technology adoption life cycle into five main segments, ranging from the fringes of the early market to the completely mainstream. As a piece of technology moves through this cycle, it gains more and more market share…
Of course, not every new piece of tech becomes commonplace.
In the nascent stages, a new technology’s growth is driven by innovators and early adopters. These are the people who want the latest and greatest, regardless of practicality.
But to make the leap from the early market to the mainstream, new tech must survive the chasm.
It’s a difficult jump. Though this year, plenty of tech has gotten an extra boost because of the global pandemic. And that’s why we’ve seen shares of some companies really take off.
200% Gains Crossing the Chasm
2020 has been a year none of us will likely ever forget.
From a market perspective, we saw the fastest 30% decline in market history. The bull market that had been alive and well for more than a decade was mauled to death by COVID-19.
But we also saw the fastest bear market low to bull market entry… a mere three days.
And since then, the markets have been on a nonstop rocket higher.
The Nasdaq is at new all-time highs, closing in on 11,000 – a number once thought of as absurd as the Dow closing in on 30,000.
The Nasdaq and tech stocks hitting new highs once again illustrates that an evolution is underway…
It has to be.
The global pandemic uprooted our lives.
Office buildings closed. Schools and stores locked their doors. Restaurants are open only for takeout. Travel – for the most part – is restricted.
Everything moved online.
And this is where we started seeing tech cross that chasm quickly.
Online retailers are more than just surviving… They’re crushing it and thriving!
Shares of companies such as Amazon (Nasdaq: AMZN), Chewy (NYSE: CHWY), eBay (Nasdaq: EBAY) and Etsy (Nasdaq: ETSY) are all up more than 60% year to date!
As a whole, the sector is outperforming the broader markets. The Amplify Online Retail ETF (Nasdaq: IBUY) is up almost 49% in 2020, more than double the gain of the broader Nasdaq.
But that’s not all…
In our new normal, Zoom Video Communications (Nasdaq: ZM) meetings, happy hours, hangouts and baby showers are an everyday occurrence. I’m actually in the process of trying to plan and organize a Zoom bachelor party.
The use of telemedicine is also skyrocketing.
And with workers now largely telecommuting, business communication platforms like Slack Technologies (NYSE: WORK) are a necessity. Meanwhile, deals still need to be made, so e-signatures and agreement cloud suites from companies like DocuSign (Nasdaq: DOCU) are imperative.
Shares of Slack are up 40% this year, while shares of DocuSign, Teladoc Health (NYSE: TDOC) and Zoom are up more than 150%. And shares of the streaming king Netflix (Nasdaq: NFLX) are up roughly 60%…
The stay-at-home economy stocks are delivering real returns.
COVID-19 has helped some of these technologies leap over that chasm from early market to mainstream in a very quick period of time.
For instance, Zoom’s monthly active users have swelled from 10 million to more than 200 million, demonstrating how videoconferencing has become a big part of our lives.
Slack now has 120,000 customers, up nearly 30% from last year’s total.
Looking at Rogers’ Diffusion of Innovation theory, you can see why we pointed investors to these companies months ago.
Yes, the quarantine and stay-at-home measures will eventually end. (Though I believe the shift will probably not be significant until a successful vaccine is developed… which has been another hot area this year.)
But COVID-19 has let the genie out of the bottle for tech.
The pandemic is accelerating the adoption of technology that was already underway – in some cases moving it up by five years or more.
There’s no going back.
They’ve crossed the chasm into mainstream. And as both tech and trend investors, we’ve been enjoying capitalizing on these opportunities.
Here’s to high returns,
About Matthew Carr
Matthew’s expertise ranges from classic industries such as oil and mining to cutting-edge markets like small cap tech, cannabis, 3D printing and cloud computing. With almost two decades of financial experience under his belt, Matthew’s knack for finding market trends never fails to surprise us, which is why we keep a close eye on his free e-letter, Profit Trends.