Chris Hill: Hey, thanks for watching! We're
coming to you from Fool global headquarters
in Alexandria, Virginia. I'm Chris Hill here
with senior analysts Jason Moser and Aaron Bush.
Thanks for being here, guys!
Jason  Moser: Thank you!
Aaron Bush: Hello!
Hill: We're talking tech stocks. We're going
to be taking your questions. First up,
Motley Fool CEO Tom Gardner has put together his
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Let's talk tech stocks. Jason, let's start
with you. I know it's the start of a new decade.
We're supposed to be looking forward.
But I can't help but look back at the decade we
just had and some of the dominant runs by some
of the most dominant tech players in the business.
Moser: Well, I mean, I think that's a good
exercise because you can learn some lessons
and that'll help guide our investing philosophy
for this coming decade. I mean, if you go
back to the market close December 31st, 2009,
if you had just invested $1,000 into each
of Apple, Amazon, Microsoft and Google and
then just went about your way and enjoyed
the decade and tap danced to work, as I've
been so fortunate to do, at the end of the
decade, you'd be sitting on close to 850% gains,
just holding those four companies alone.
I mean, what they have done over the past
decade has been nothing short of phenomenal.
But it's not surprising at all. When you look
at the role those companies play in our lives
today, it makes perfect sense. I don't know
how easy it was to see back then, but it sure
is easy to see now in hindsight.
Hill: We'll get into some of what makes tech
stocks great, Aaron. But first, given what
he just said, I think a natural question for
anyone watching is, OK, those are great,
do they still have room to run? Is it worth investing
in an Apple or an Amazon today?
Bush: I think so. And I think the same reasons
that made these companies really the first
trillion-dollar companies that we're starting
to see, a lot of the same advantages play forward.
And in my mind, it really boils down
to three things. One of them is just that
these companies for consumers, it's ubiquitous.
Everybody can access free services like Google
and Amazon, everybody can access something
like Netflix. So, on a consumer perspective,
everybody in the world can use these companies,
which is what makes them so big. And really,
it's also ubiquitous for companies as well.
We throw around tech stocks and tech companies,
but the reality is that every company is increasingly
becoming a tech company in its own way using
pieces of technology to innovate and improve
what they're doing. And the infrastructure
to make that possible, all of these companies
are building on the Microsofts, on the Amazons.
And then lastly, these are just really good
businesses, right? They're built to scale.
They have super high margins, recurring revenues,
network effects. You could go down the list
checking off the boxes of what makes these
companies good, but really, between the ubiquity
for consumers and companies, and just the
fact that they're inherently good businesses,
it's made them the trillion-dollar companies.
Those advantages aren't going away and should
make them bigger. 
Hill: Jason, let's get into a couple of things
that Aaron just touched on. And we'll start
with margins. Because I think for any investor
who's thinking about investing, particularly
in tech companies, you've got to roll up your
sleeves, do a little bit of math. And looking
at margins, particularly when it comes to
software companies, among others, but margins
is one of those things that can be really
attractive in a tech company.
Moser: Yeah, I mean, they can but I mean,
you also have to figure out what kind of tech
company you're looking at, right? I mean,
if this is a hardware company, or if it's
a software company, if it's some kind of a
services company. Because that will dictate
how that margin picture shakes out. And a
lot of companies, I mean, you look at something
like an Adobe, for example, and I think with
85% to 90% growth margins that you see with
Adobe on a consistent basis, just phenomenal.
I mean, you love to find investments like
those. I mean, you flip that over and you
look at something like Apple, for all intents
and purposes, right now, it's still pretty
much a hardware company. And we've seen over
the past several years, those margins start
to come under pressure, as they can realize
a little bit less pricing on the device side.
So it is a matter of making sure that you're
comparing apples to apples, not apples to oranges.
But there are a lot of different
ways to play it. And there's no question that
when you're talking about a lot of these tech
companies, particularly as they get bigger,
and when you talk about companies that scale,
and they can reach wider audiences and do
more things without having really to invest
a whole heck of a lot more into the business,
you can see some real operating leverage start
carrying down to that bottom line. And the
bigger they get, the more powerful and profitable
they become. And that's why you've seen some
of these companies that have performed so
well over the last decade.
Hill: Aaron, you talked about some of the
companies that are, as you said, right in
front of us all the time. Netflix, Apple,
Amazon. But some of the companies that we've
seen rise over the past decade are not as
obvious because they're not consumer-facing.
They're behind the scenes, but they have the
same attractiveness for businesses and that
stickiness that we like to see. Just as,
if you're shopping on Amazon, it becomes easy
to keep shopping on Amazon. And some of these
businesses that we look at in the B2B space,
they have that same level of stickiness.
Bush: Yeah, and Amazon is one of those businesses
too with AWS, Microsoft with Azure. They've
built the infrastructure that all of these
companies are building on. And there are natural
economies of scale advantages to that, that
makes them high-margin. And tech companies
doesn't necessarily equal high margins. There's
a full tech stack of different types of technology
companies. Software, hardware, everything
in between. So I wouldn't claim too specific
to just margins. But one benefit of having
high margins is that, as Jamo said, more goes
to the bottom line. And when more goes to
the bottom line, you can reinvest in building
out your infrastructure more to get even greater
economies of scale, you can invest more in
R&D to just move faster so that nobody can
catch up with you. And all of these companies
figured that out very early, and they've just
been like a commercial machine, scaling in
a way that others can't compete with.
Moser: I think he's made a really good point
early on that we have to make sure we address,
because, I mean, a tech company today is far
different than what we'd have defined it as
10 years ago. I mean, there are a lot of companies
out there today, maybe they're not necessarily
tech companies, but they're using a lot of
technology to make their particular offerings
palatable or attractive. I mean, look at a
lot of these payments companies. I don't know
that I would necessarily call Teladoc Health,
for example, a tech company, right? I mean,
the primary market it serves is healthcare, right?
But it's using technology in such a
way that the healthcare market has really
never seen until today. And so, I mean,
it is a quasi-tech company, I guess. Maybe you
could make that argument. But it really is
important to note, a lot of these companies,
what they're doing with that technology.
Even if they're not first and foremost a tech company,
they still might qualify under that tech umbrella
because of what they're doing with that technology
for the end market that they serve.
Hill: Well, and we've also seen over the past
year in particular, companies that come out
and say, "We are a tech company," and the
underlying business really isn't. And, yes,
I'm sorry, WeWork, I'm looking at you.
So, how do investors begin to sort of separate
the contenders from the pretenders? What should
we be looking at when we're trying to decide,
OK, this is a tech business that looks pretty
good right now, could be great down the line,
as opposed to what was, in the case of WeWork,
a real estate business that was ultimately
just a house of cards?
Bush: Well, first of all, you have to understand
which companies are misguiding you. Right?
[laughs] It really boils down to that. There
are a lot of companies that would call themselves
tech companies that are or aren't.
But at the end of the day, I think what is useful
is almost being blind to what a company is
calling itself and whether something is being called
a technology company or not a technology company.
I think at the end of the day, what matters
most is just, is this company innovating?
And if they're innovating, they're probably
using technology in a way that helps them
better serve their customers and better grow.
And so, in my mind, that is the most important
thing that separates those that are succeeding
in the future to those that are really more
clinging to the past and will be those pretenders. 
Moser: You can find some funny language in
S-1s, and, I mean, 10-Ks, too. We talked a
lot about Casper, I think, here recently.
It's just kind of interesting to note some
of the language that they use. I think they
coined the phrase "sleep economy." I mean,
I'm not terribly sure I'm buying into that
one yet. I mean, I don't know if they consider
themselves a tech company. But sometimes it
just takes a little bit of a litmus test.
I mean, just use a little judgment. "You know what?
That doesn't really sound like a tech
company to me."
Bush: Think for yourself.
Moser: Yeah, exactly.
Hill: We're going to be getting to your questions
in just a moment. The guys have a couple of
stocks for anyone who's looking to build out
a watch list. But let's go a little bit broader.
Just, in terms of industries that you're looking at,
Aaron, I know you're a big fan of gaming.
Bush: Yeah. Maybe, to back up and kind of
view this macro, I think, thinking about technology
and technology stocks, if you look at, maybe,
the early 2000s, mid-90s through 2015 or so,
that was the technology phase of connecting
the world. And then somewhere around 2010,
2015, onto, I don't know, the next few years,
it's all about, OK, now that everybody is
connected, what are all the things that we
can do that we couldn't do before?
And so, some of that stuff has already happened,
like streaming and social media. But I think that
there is a next phase of industries that haven't
been touched yet that are interesting.
So, cloud gaming is one of those. Real estate,
education. There's so many things that are
possible in industries like that. But also,
when I play it forward just a bit further,
we're starting to see very early stages of
the next wave of consumer technology, the
ARs, the VRs, that in my mind are really interesting
in and of themselves, but are really just
building blocks to the next evolution of the
internet, which is the metaverse. And Jason
and I talked about this a little bit.
But that next iteration of the internet is really
about making all of these things -- how you work,
how you learn, how you play -- more
immersive, more gateways to get to it, more
ways to interact. Digital economies. And so,
trying to find the companies that are leading
the way in that. And there won't just be one company.
There's isn't an on button for the metaverse.
It's something that will organically
grow over many years. But finding the companies
that are starting to pioneer that, I think,
will have the biggest upside in technology.
Moser: Yeah, I mean, for me, it remains of
focus on immersive technology, virtual reality,
augmented reality. I have the good fortune
to serve as the advisor of our augmented reality
service here. And to me, we talk about total
addressable market and market opportunities.
And you see, finally, a lot of progress being
made on the AR and VR front. And I think,
for a long time, we were looking for the consumer
implications there. And really, we've seen
a lot more progress on the enterprise side
of things, which is really encouraging, because
a lot of that technology and a lot of those
ideas are starting to trickle down to the
consumer. But for me, I mean, you look at
the spending that has existed in the space
today, $4 billion or $5 billion. I mean, you
fast-forward five years, and you're talking
about a $60 billion to $70 billion market.
A lot of potential there. Aaron and I,
we sit next to each other at work here,
so we get to talk a lot about this stuff. In line
with gaming, digital economies, any kind of
thing that plays into that immersive technology.
That's just a space I'm really excited about.
Hill: Alright, before we get to questions
from the audience, let's get to two stocks
that they can add to their watch list. 
Aaron, you're up first, what do you got?
Bush: So I'm going to start with Zillow.
This is a dual-class shared company.
So the tickers are either Z or ZG. It really doesn't matter
which one; you'll get the same returns, essentially.
And so, talking about how this time
period is about, now that everybody is
connected, what are the new things that we
can do? Real estate remains one of the largest
global markets that remains relatively unchanged
by technology. And Zillow probably isn't thought
of by most people as a hardcore technology
business, but its purpose has always been
to build a platform that informs buyers and
sellers and connects them to agents.
So, it's provided useful information. But the core
business has traditionally been to serve that
old guard. That's all changing right now.
And they're really leaning into i-buying,
which is building software and systems that
allows them to innovate on the transaction
process itself. And this is a huge opportunity
that really only a handful of companies,
in the U.S. at least, are equipped to lead.
And Zillow has a few advantages there.
And so far, they've started this. It's led to a major
acceleration in their revenue. It's also led
to higher losses. And what I think investors
could be missing out on is the idea that,
yes, technology makes this possible, but economies
of scale makes it viable. And we haven't seen
those economies of scale kick in yet.
So, what Zillow could look like in the future
is probably a lot different than what it looks
like today. Of course, it's not guaranteed.
There still is a good amount of risk there.
But in my mind, it's really interesting because
if they get it right, the potential
upside is pretty extreme.
Hill: What about you, Jason?
Moser: Yeah, I'm going to go with the top-performing
stock in our AR service today. And I've got
20 recommendations in the service right now.
The top performer since we opened last June
is Lumentum. And I think it probably flies
under the radar of a lot of folks out there.
But this is really part of the backbone of
that augmented reality, virtual reality technology.
They're known as the leader in the --
this is going to be a mouthful here -- VCSEL. Alright,
you got that? Does that make sense for you?
Vertical cavity surface emitting lasers.
And these are little lasers, chip-like devices,
components, really, that go into our smartphones.
The nice thing about Lumentum is, it's bone
agnostic. You'll find them in iPhones and
you'll find many Android devices, which is
really nice. But you look at the VCSEL market,
it's going to grow to $4 billion in 2023 up
from about $1.8 billion in 2018. I'm always
a little apprehensive when it comes to these
components companies, because you can see
reliance on big partners like Apple can result
in some margin compression because they lose
a little bit of pricing. But when you talk
about the runway that exists for this technology,
and the fact that it's going to expand beyond
phones, and then you look at the fact that
Lumentum really is the global leader in this
space, I just think there's still a lot of
opportunity there for this business. And certainly,
the China trade war, I think, has created
a little bit of uncertainty. I think that's
actually played out on the stock a little bit.
It's still performed very well. I feel
like there are a lot of tailwinds for this
business. And, again, like I said, it's the
top performer in our AR service today.
Hill: Alright, if you're enjoying the video,
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It helps other people find videos like this,
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Tom Gardner's top stocks for 2020.
Let's get to the questions coming in.
A lot of great questions. First up, Sandeep,
who asks, "I know you guys like MercadoLibre.
Are there any other good tech stocks outside
the United States?" MercadoLibre,
a big e-commerce player south of the border.
Moser: Yeah, I mean, MercadoLibre I think
we've always known as the e-commerce play
of Latin America, kind of the Amazon of Latin America.
If you look through their results
here recently, I mean, this is clearly just
as much a payments company as it is an e-commerce
play at this point. So, beyond MercadoLibre,
when you look at Latin America -- Brazil,
in particular -- the opportunities that exist there,
StoneCo, which is a payments company
that focuses on Latin American markets,
I think is a really interesting idea. It's a
stock I own personally, and it's certainly
gaining a lot of traction as the tailwinds
in electronic payments continue to pick up.
Bush: Yeah. I mean, another payments company
is Adyen, which is based in Amsterdam.
There really are so many. I think Australia is a
gold mine for lots of software companies and
payments companies that most of us here don't
even really pay that much attention to.
And, of course, China. There are now more Chinese
unicorns than U.S. ones, which is a pretty
remarkable statistic. And so, I think, I mean,
a lot of investors are concerned about China,
especially with headlines like trade wars.
But there are companies that are big and small,
big like Tencent and smaller, like various
streaming companies and such, that are doing
all types of things. They're all over the place.
Hill: A couple of people asking about regulatory
challenges, big tech stocks like Amazon and
Apple being broken up. Is that something you
factor into your thinking when you're thinking
about whether or not to buy shares of these
companies? Great question, because it certainly
has gotten a lot of coverage.
Bush: Yeah, I mean, I think it's absolutely
worth thinking about. I think the problem
is that a lot of the old regulatory rules
really struggle to apply to today's modern
environment because there just hasn't been
anything like it in the past. And if you consider
something like Google, Alphabet, a monopoly
is that unlike the monopolies of the past,
like the U.S. Steels or something, those were
supply-side monopolies. They controlled the
supply and left few options for everybody.
These services like Google and Facebook,
they're free. Right? It's hard to split things up
that are free, or it wouldn't make sense to,
because people choose them for a reason.
Where I think it becomes problematic is, yes,
at some point, you need to stop someone like
Facebook from acquiring another network.
And yes, for a company like Amazon, you need to
watch closely to make sure that they're not
using contracts to their advantage with suppliers,
for example, keeping them from selling on
platforms that aren't Amazon and using their
size to the disadvantage of other players.
So, in the big perspective, I'm really not
that worried. But, of course, I also wouldn't
trust our regulators to necessarily make the
right decisions, mainly just because the laws
are ill-equipped to handle today's environment.
Hill: Well, and I talked to one tech analyst
a couple of months ago who threw out the possibility
that Amazon would proactively spin-off Amazon
Web Services as its own company as a way to
avoid regulatory challenges. And in his way
of thinking, he said, if they spin off AWS,
that could be a $500 billion company on its own.
Moser: Yeah, I mean,
there's no question it could be.
I mean, when we talk about regulatory
concerns, and the potential for companies
being split up, I think the default is to
think that's a bad thing. The fact of the
matter is, that doesn't always actually have
to be a bad thing. It could very well be a
good thing. I mean, if you saw Amazon split up,
for example, you have AWS and then you
have a core Amazon business, I mean, I can come up
with compelling reasons to stay invested in both.
Hill: Question from Eric, who says,
"You mentioned gaming, do you think Sony is a good
stock for the future? What stocks do you like
to capitalize on eSports and video gaming?"
Bush: I can't really speak to Sony in particular.
I know that they've had a really strong year.
Maybe Jason knows more about them. In gaming,
PlayStation is fine. They'll have a strong
next console generation, which launches this
next holiday season. In terms of eSports,
I think eSports is generally overrated because
the value chain favors those who own the sport.
Because unlike something like the NBA,
or basketball or football, nobody owns football.
But for something like League of Legends,
or Call of Duty, there is a company that owns
the game. And so, when they build eSports
ecosystems, it's naturally going to favor
them, right? So, it gets tougher. But I do
think that if you look closely at a lot of
the big publishers out there, they're really
outstanding companies. And I would just throw
a company like Zynga out there, which is a
leading player in mobile gaming. Which, mobile
gaming is the largest and fastest-growing
component of gaming. And maybe it doesn't sound
as spicy as eSports, but it's a much better business.
Hill: John asks, "What are
your thoughts on Uber?"
Uber and Lyft both seem like businesses that,
if they went away tomorrow, we would
miss them as consumers. But right now, I don't
know that we would miss them as investors.
Moser: I feel like they're better services
than they are investments. Now, that certainly
could change. I think it's going to be a matter of,
ultimately, what they do with those networks.
I mean, right now, it's kind of plain to see
what they do, in their ride business,
and I think they're dipping a toe in logistics
and whatnot. Food delivery seems to be a little
bit of an uncertainty there. I know that Uber
recently sold its food delivery business in
India just because the economics didn't really
make sense. I mean, I feel like they're better services
than investment ideas right now,
because the economics just aren't compelling.
And you can see there are certainly regulatory
risks from the perspective of states wanting
to change the laws regarding this gig economy, and
making these companies protect their employees more.
So, regardless of where you fall on
that issue, I mean, that certainly is something
that could make the economics of the business
even more difficult than they are today, which
obviously wouldn't play out well for investors.
So, for me, I'm having fun learning about them,
but I have zero interest in investing
in any of them right now.
Hill: One commenter asks, "I see a lot of companies
throat a huge TAM," total addressable market,
"number out there for their growth story,
and it's really hard for me to understand
how realistic those are. How do you guys dig
into those?" Great question. You mentioned
Casper before. I don't want to pick on Casper,
but they seem like only the latest company
that, when they filed their S-1 to go public,
they refer to an enormous total addressable market.
And it's a great question, because,
some of those can be reasonable, and some
of those can be really pie in the sky.
Moser: Yeah, I think some businesses are
a little bit more proven and you can take
that total addressable market to heart.
Other businesses that have not proven
themselves yet, I have a general philosophy.
I look at that TAM that they quote and I basically
give it a 40% haircut. And then I look at it from
that perspective. And I say, OK, now, assuming
that this is 60% of what they're saying is,
is that still an attractive market? Is that
still reasonable? And that can help me determine
whether this is an idea worth pursuing.
But, yeah, if you take them at their word,
you're setting yourself up for some trouble.
Hill: Do you have a trick like that?
Bush: I mean, somewhat. I mean, I think what
is compelling is if you can cut it by 40%
and it still is big enough that you're just like,
OK, that's compelling. But really,
you've just got to think for yourself. So much it
goes to that. Planet Fitness is another example,
where they throw out a massive total addressable
market. And it's something like, these are
all the people who are exercising. But how
many of them will choose a gym, and then within
that gym, choose Planet Fitness? You just
have to narrow down based on that. But still,
a small company and massive market. Even if
you cut it down by a huge amount, you can
still see how they can expand internationally
and do all these cool things.
Moser: I mean, go through that WeWork S-1
and look at the total addressable market they quote.
I mean, you don't even think, really,
there's that much money that exists in the world.
These numbers are so big. So, yeah,
that will certainly make you think.
But, yeah, I mean, you've just got to be able
to think for yourself in some cases.
Hill: I love this. I'm going to take a page
out of the playbook of all these CEOs.
The total addressable market for this video is
the entire planet. Anyone who has internet access.
Let's make it happen, people. 
Moser: I mean, you're not wrong.
Hill: We could get billions of views on this.
Moser: We could argue it,
but you're not wrong, technically.
Hill: Question from Pavelsema, who asks,
"What are your thoughts on space
tech companies like Virgin Galactic?"
Moser: God, I love space. I'm just the biggest
space nerd. I watch space documentaries on
TV and I think about that stuff all the time.
So, for me, I mean, this is a space, no pun
intended, where I would love to invest. I'm going
to be excited when more ideas come to fruition.
It's such a young market right now.
And, I mean, I don't know that there are very
many ideas out there that I'd be all that
terribly interested in right now. But I will
recommend, go check out Space Angels.
This is a venture capital group, and they basically
pulled a lot of money from qualified investors
to invest in this industry. So, a lot of the
money they're investing is in companies that
are not public right now. But I think a lot
of these companies will be on that radar,
and we'll see some of those ideas go public
at some point here in the future. But if you
check out Space Angels, you'll get some really
great information there.
Bush: Yeah, I think it's early.
Most companies are private. But it's worth
paying attention to because the space is hard.
Hill: Yeah, it's all the way up there.
Moser: Elon said that, I remember, to Jeff Bezos.
Bush: Space is hard.
If you can find a business
that is a viable business economically,
odds are really high in this industry that the
barriers to entry are just so extreme that
there are only a tiny number of companies
in the world that can compete. So, something
like Virgin Galactic, I actually don't know
that much about the business. But I can guarantee you,
how many competitors do they have? Right?
Maybe one or two at some point. The stock's
been phenomenal, it's doubled in the past month.
I don't know how sustainable that is,
but it's worth digging into, for sure.
Moser: I absolutely would recommend reading
that book, The Space Barons. We had a chance
to speak with the author of the book, Chris
Davenport. He's with the Washington Post.
Just a tremendous book. It talks about Elon Musk,
Jeff Bezos, Richard Branson, and I think
Paul Allen, too, and all of their efforts
into figuring out how to get an edge in this
space market. And, to Aaron's point, space
is hard, but man, the folks that are out there
working on it now, there's a lot of money
going into it, and once you figure out how
to crack that nut, the barriers to entry are
going to be a phenomenal competitive advantage.
Hill: A question from Ivan, who asks, "Do you
guys have any interest in blockchain technology,
and are there any easy ways to invest in it?"
Bush: Well, yes, I do. Yeah, a couple years ago,
I started a service called Crypto Society,
which focuses on researching cryptocurrencies,
finding investments that leverage blockchain
technologies, decentralized technologies,
to find ways to improve their business and
scale to new heights. And I absolutely think that
it's fascinating. Probably the best way
to invest in it is just buy Bitcoin,
which is the dominant cryptocurrency. The safest,
one of the most interesting. If you want to
put in a lot of work, you can go through others
like Ethereum and such. But there are also
companies out there that are leveraging this
technology in interesting ways, like DocuSign
with e-signatures, they're able to, if you
use one of their services, you can sign a
contract onto the Ethereum blockchain where
it's secured and can't be tampered with.
In general, I think we've seen the hype cycle
play out. There was a lot of speculation interests
that drove prices up. It's for the most part
bottomed out. And I actually think now is
a really good time to be thinking about, OK,
now that 99% of the casual observers are no
longer observing, all who is left are the
builders and the people who really know what's
going on. And these people are building cool
things. And it's worth paying attention to.
There are some public companies that do stuff.
There's different cryptocurrencies. And there's
a bunch of private companies, too. But it's
definitely something that's going to grow
more important, and also is a building block
for the metaverse, which we talked about earlier.
Digital economies will be powered by digital
money. And so, it's interesting as its own
industry and as a building block.
Hill: Alright, Aaron Bush, Jason Moser guys,
thanks for being here!
Bush: Thank you!
Hill: Thank you again for watching! Again,
go to fool.com/2020, you can get Tom Gardner's
top stocks for 2020. And thanks for the thumbs up.
We really appreciate it. Don't forget
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For everyone here at The Motley Fool,
I'm Chris Hill, thanks for watching!
We'll see you next week.
