China is home to some of the world’s fastest-growing technology companies. As Investopedia reports, the number of software enterprises in the country more than doubled between 2009 and 2014 – a trend expected to continue as China transitions from manufacturing to services and consumer-oriented growth.
North American investors have been paying close attention to China’s software revolution and are now parking more of their money into high-flying tech companies. Luckily, they don’t have to look very far to capitalize on the opportunity.
Alibaba.com (NYSE: BABA) and Tencent Holdings (OTC: TCEHY) are two leading technology stocks that can be bought and sold directly on U.S. exchanges and through over-the-counter markets.
- Market Cap: $481.3 billion
- Revenue Growth: 50.6% (2019)
- Free Cash Flow: $101.3 billion
Alibaba has become synonymous with China’s e-commerce boom, having recorded remarkable growth over the past ten years. The company is coming off another solid quarter of earnings, with top- and bottom-line results exceeding expectations. Holiday shopping in the U.S. and China is expected to make Q4 2019 another solid reporting period for the company.
BABA stock has returned more than 42% this year, far outpacing the Global X MSCI China Information Technology ETF (CHIK) and the Nasdaq Composite Index.
Aside from its core commerce business, Alibaba is relying on new market catalysts to sustain its growth. Chief among them is cloud computing, a market that is still dominated by Amazon and Microsoft. Alibaba’s cloud computing revenue spiked 64% in the latest quarter compared with overall revenue growth of 40%. At the same time, cloud computing still accounts for a tiny fraction of the company’s overall sales.
- Market Cap: $403.3 billion
- Revenue Growth: 31.5% (2018)
- Free Cash Flow: $52.38 billion
Tencent Holdings recently reported third-quarter results that fell short on revenue, but the internet giant maintained healthy growth rates across most of its core services. The bellwether for China’s messaging and mobile gaming market boasts more than 1.1 billion users on its WeChat messaging app.
2019 has not been kind to Tencent’s stock. After a strong first quarter, TCEHY has given up all its yearly gains and is now trading flat for 2019. In doing so, TCEHY has vastly underperformed the CHIK ETF as well as U.S. technology stocks.
The stock’s disappointing performance is tied to a softening advertising market in China. Even then, Tencent has managed to grow its online advertising business steadily throughout 2019.
Although Tencent isn’t a slam dunk by any means, the company is seeking new growth drivers in what has become a year of transition. A rich gaming pipeline, strategic investments in cloud and mobile payments and cost-cutting at the mid-manager level point to brighter days ahead for the internet giant. As the first Asian company to reach a $500 billion market cap, Tencent still has plenty of clout among investors.
Disclaimer: Author holds no investment position in Alibaba or Tencent at the time of writing.