|A Special Note from Michael: The coronavirus crisis has demonstrated just how important effective vaccines are in containing the spread of disease. In fact, a vaccine that can stop COVID-19 dead in its tracks is going to be a huge game changer when it comes to returning daily life to normal in America. That means that the first company that manages to reach this goal stands to make incredible profits from vaccinating the whole country, and the whole world. In fact, the job is so big that there is room for more than one company to win this race. Click here to see what I’ve discovered.|
Microsoft Corp. (MSFT) is set to release an upgrade to its signature operating system with a very unique hook.
In as little as three months from now, Mr. Softy goes to market with Windows 10X.
Microsoft has designed the upgrade specifically to address the coming era of foldable-screen PCs and dual-screen laptops.
Here’s the thing; I have recommended Microsoft several times in recent years and continue to do so.
But today, I want to talk with you about the flip side of that investing coin – the 10X upgrade cycle.
Once 10X hits the market around the fall of this year, other software and apps makers will have to tweak their packages to fit the new format.
And that means there is a much broader play that takes advantage of the 10X ecosystem and other software trends.
Now then, the foldable display market remains pretty modest right now for a simple reason – a lack of devices on the market.
But all that will change in the coming months. I’m hedging on the exact timing here because the Covid-19 panic has upended formal release dates for tech products across the board.
Let’s be clear. Laptops already fold to open or close. Foldable-screen versions operate as they sound – the device folds from the screen and can do away with a physical keyboard to provide a much larger viewing area.
Make no mistake. The foldable world will experience massive growth. Analysts at Market Study Report peg foldable displays as being worth $18 billion by 2025.
To me that’s amazing when you consider the tech industry only began taking this new design seriously in January 2019 when Lenovo Group Ltd. unveiled a prototype.
Lenovo says it will release a production version of the ThinkPad X1 fold as early as this fall.
Not to be outdone, Microsoft is expected to offer two of its own models, the Surface Neo and the Surface Duo, around the same time. The firm says the 10X OS also will be installed on products from such other makers as ASUS and Dell Technologies Inc. (DELL).
But I believe that’s just scratching the surface of the potential here.
Fact is, software developers are now coding their apps and packages to run on 10X. That’s important because Microsoft watchers are expecting 10X to be ported over to standard laptops and PCs.
And that means there are plenty of software companies who will be getting in on all the action. After all, just the market for software used by large organizations is worth $452 billion.
So, while I still like Microsoft as a core holding, I would be remiss if I didn’t give you the opportunity to play the 10X upgrade cycle with an investment that also capture other key software trends.
A Flexible Software Investment
And that’s why I also suggest taking a stake in the SPDR S&P Software & Services (XSW). This is an all-encompassing exchange traded fund (ETF) that gives us a broad play on some very intriguing companies.
The fund holds 162 stocks in total. Most of the firms are smaller, and lesser known. So, holding them here is a way to capture the upside but limit the risk associated with firms off Wall Street’s radar. I’m talking about companies like:
- BlackLine Inc. (BL) helps clients move many of their backend accounting functions into a cloud-based platform. Their tagline says it all, “modern accounting is unified, automated and continuous.” We’re talking things like journal entries, task managements, compliance with regulations, and transaction matching. Blackline now boasts more than 230,000 users at 3,000 customers in over 150 countries.
- Nuance Communications Inc. (NUAN) is pioneering a field it calls “conversational AI.” It’s one of the few “pure play” AI firms that is publicly traded. Based in the cloud, the software can understand, analyze and respond to human speech. The firm counts 10,000 global healthcare companies as clients and is used by 80% of U.S. radiologists.
- RingCentral Inc. (RNG) provides what is known as Unified Communications as a Service (UCaaS). The appeal of UCaaS is partly about cost-saving. Moving communications hubs to the cloud allows clients to lower the costs of operating their phone services while at the same time expanding what they are able to do by moving to fully digital, platforms.
- Cadence Design (CDNS). This actually is a great double play that lets the fund and its investors benefit from the semiconductor boom. That means it touches everything from laptops to smartphone and tablets to consumer electronics. The firm is a leader in providing software and other services that help chip makers design and test the quality of their products.
XSW is very cost-effective investment vehicle because it covers the entire software sector as the economy reopens from the Covid-19 shutdowns.
So, the timing is good on two fronts. First, we are getting in ahead of Microsofts’s 10X OS upgrade and the move to foldable computers.
Second, companies throughout the economy will increasingly adopt more software to take advantage of digital applications that replace paper or legacy systems.
And the performance speaks for itself. Since it hit bottom on March 18, XSW has advanced by 57%.
By contrast, the S&P 500 has gained 38% over the period. That means XSW has beaten the broad market by 52.6%.
Given the outsize role that software will continue to play in virtually every industry in the world, I expect this to remain a market leader for years to come.
That makes this a great foundational play for a wealth-building tech portfolio.
Cheers and good investing,
Michael A. Robinson