Growth stocks are notoriously more volatile than other types of shares. And that’s something the recent stock market correction abruptly reminded investors of.
However, while the risk is certainly higher, these typically younger enterprises can enhance an investment portfolio to generate far superior returns in the long run.
The UK has its fair share of growth investments to pick from. But lately, I’ve had my eye on US tech stocks that continue to look like terrific opportunities even in the current economic climate.
With that in mind, let’s look at two firms from my portfolio that I’m currently tempted to add more of.
Driving drug development
It’s no secret that researching, developing, and eventually bringing new pharmaceutical drugs to the market is a challenging task. The process can take more than a decade from start to finish, costing billions along the way. That’s why pure-play pharmaceutical companies can be quite a risky investment.
However, one business that thrives even during failed clinical trials is Veeva Systems (NYSE:VEEV). The company provides a specialised CRM platform to aid pharmaceutical, biotech, medical device, and clinical research organisations in bringing new products to market faster without accidentally breaching compliance.
While there are alternative software solutions available, Veeva has managed to position itself as the industry standard, used by the biggest names in healthcare, including GSK, Moderna, Pfizer, AstraZeneca, Bristol Myers Squibb, and Novartis, among others.
While thousands of healthcare companies rely on Veeva, the bulk of the revenue stream stems from these industry leaders. As such, there is some sales concentration risk. If a key client decides to swap to an alternative solution, it could have a dire impact on the firm’s performance.
But with Veeva so heavily embedded into its customers’ operations, that’s far easier said than done. And since demand for new and effective medicine isn’t likely to disappear for decades, Veeva looks like a top-notch growth stock, in my eyes.
Powering the cloud
While Veeva’s platform is at the heart of healthcare, it wouldn’t function without cloud computing providers like Microsoft Azure. But, Azure itself is reliant on other firms to provide the critical hardware needed to create the necessary bandwidth for rapid computing.
Today, Cisco Systems is a key supplier to the cloud computing industry, providing critical hardware to data centres. But over the last decade, Arista Networks (NYSE:ANET) has been slowly pushing Cisco out of the market.
The group’s latest ethernet switching provides the largest bandwidth in the industry, far outperforming Cisco’s own technology.
Subsequently, Arista now controls more than 23% of the global ethernet switch market, versus only 7% in 2013. And this trend doesn’t look like it’s going to change anytime soon.
Similar to Veeva, Arista has a revenue concentration risk, with Microsoft and Meta Platform making up a ginormous chunk of its revenue stream. And the loss of one of these customers could have severe repercussions.
Nevertheless, management’s heavy investment in research & development has propelled the group to be significantly more technologically advanced than its competitors.
So much so that I believe Arista could become the new dominant industry leader within the next decade.
