Over the next 10 years, I think I'll make the most money in this area of the stock market
As a long-term stock market investor, I'm continually thinking about how to build the best portfolio for the long run. I spend a lot of time thinking about the sectors and stocks that are going to make me the most money over the next decade and beyond.
Recently, I've been giving some thought as to the area of the market I'm most bullish on for the next decade. And I've concluded that it's software. Here's why I think this is the place (for me) to be.
The world today is in the midst of a powerful technology revolution. Some people like to call it the 'fourth industrial revolution'.
This revolution – powered by technologies such as cloud computing and artificial intelligence (AI) – is unlikely to end any time soon. Looking ahead, the world is only going to become more digital.
Now, software is a great way to play this theme, in my view. Because it's literally at the heart of this revolution.
Whether it's accounting, payroll, CRM, collaboration, programming, database, or cybersecurity software, it's helping companies become more digital. So, I think there are going to be some big opportunities in this area of the market over the next decade.
It's worth pointing out that there are several benefits to investing in software companies.
One is recurring revenues. Software tends to be quite 'sticky' because of the high costs of switching to another provider (re-training staff etc.).
Another is pricing power. If a software company has a good product, it can usually increase its prices regularly (generating higher revenues) without customers leaving (they'd rather pay the higher costs than switch to another provider).
Within software, there are two key growth areas that excite me when I take a 10-year view.
The first is AI agents. This is software that can perform business functions autonomously and I reckon it's going to be huge (the market could be worth over $10trn).
Companies developing solutions here include the likes of Salesforce and ServiceNow. Recently, I've been building up a position in Salesforce.
The other area that I think has massive potential is cybersecurity. With cyberthreats becoming increasingly sophisticated (due to AI), companies are going to have to spend a ton of money on cybersecurity to protect themselves over the next decade.
Now, the stock I'm most bullish on here is CrowdStrike (NASDAQ: CRWD). It's one of the largest companies in the cybersecurity industry today.
This company is growing at a phenomenal rate thanks to its advanced, cloud-native cybersecurity platform. Over the last three financial years, its revenue has jumped from $1.45bn to $3.95bn – growth of 172%.
I'm not expecting the company to continue growing at that pace. But I do expect top-line growth to be strong in the years ahead given the threat environment (21% growth is expected this financial year).
It's worth pointing out that cybersecurity is a competitive industry. And competition from rivals such as Zscaler is a risk.
Another thing to be aware of is that the stock is up a lot over the last year and currently has a high valuation. So a pullback is a possibility.
Taking a long-term view, however, I'm bullish. I think this software stock is worth considering, especially on dips.
The post Over the next 10 years, I think I'll make the most money in this area of the stock market appeared first on The Motley Fool UK.
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Edward Sheldon has positions in CrowdStrike, Salesforce, and Zscaler. The Motley Fool UK has recommended CrowdStrike, Salesforce, ServiceNow, and Zscaler. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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