I don’t know about you, but I would love to own a piece of the Fast & Furious movie franchise.
I recently saw a preview for the ninth installment set to debut in the spring of 2020. I’m a big fan of the action-adventure genre in general, and this series of movies in particular.
Don’t scoff, there’s big money here. To date, the nine movies have brought in more than $5 billion.
Here’s the thing. Something similar is happening in the high-margin software sector.
Technically speaking, it’s a field known as “DevOps.” The term refers to the $50 billion up for grabs by helping companies make a transition from legacy systems to cutting-edge digital tech.
Today, I’m going to show you what I call “Software’s Fast & Furious.” And I’ll reveal a tech stock that will more than double the market’s return for years to come.
Check it out…
Hollywood’s Winning Formula
You have to hand it to Hollywood, it certainly knows a winning formula when it sees one.
For casual observers, the original Fast & Furious that debuted in the summer of 2001 might have seemed like disposable fun – a Los Angeles cop enlists the help of a childhood friend to thwart a string of delivery truck hijackings… action and adventure ensue.
But it went on to become one of the best franchises in movie history.
I believe the comparison to DevOps – essentially software development practices that align closely with business objectives – is more than a little appropriate. Fact is, this sector of the software industry doesn’t get a lot of attention.
And yet, it’s a highly profitable high-wire act. Companies in such fields as telecom, manufacturing, and finance need these “Fast & Furious” tools for high-tech automation, collaboration, and application management.
Industry analysts note that DevOps began quietly about 10 years ago. But a new report from Cowen & Co. says that last year the field was already worth roughly $7.9 billion, a figure the firms says will triple by 2023.
A Growing Industry
But that forecast may be quite conservative. For its part, Morgan Stanley projects that by 2022 DevOps and related services will be worth roughly $50 billion.
Make no mistake. “Fast & Furious Software” crews are set to have a pervasive impact on how companies operate their tech systems.
Consider that market research firm Gartner says by the end of next year, roughly 80% of IT organizations will adopt at least some type of DevOps programs. That’s just shy of double the 41% rate in 2017.
As you might imagine with a new field rapidly taking root across the tech ecosystem, DevOps contains several key trends that are pushing adoption.
Tech consulting firm Squadex says that five trends in particular are helping the field rapidly gain ground. They include:
- Automating software writing and inspection to reduce time-consuming human errors.
- Serverless Computing so that IT groups can scale up their work and write apps strictly in the cloud.
- Everything as Code in which apps and even operating systems are treated as computer source code rather than stand-alone items.
- Self-healing Infrastructure that allows the platforms to find and fix problems on the fly without human intervention.
- Machine Learning so that the software can comb through reams of data, make sense of it all quickly and then automatically learn from the patterns.
In other words, a leader in this field has to have robust products and a very agile sense of how to help clients master the DevOps landscape.
A Profit Machine
And this is precisely why Splunk Inc. (NASDAQ: SPLK) has become a bona fide profit machine. Based in San Francisco, the firm is primarily known as one of the world’s top data-analytics firms.
But its DevOps programs are second to none. In fact, Splunk has quickly become the go-to firm for both DevOps client packages, and as a clearing house for key data and best practices.
For instance, Splunk prints an annual report on the state of the field. It offers webinars on winning strategies, and sometimes conducts surveys of thousands of DevOps engineers.
Think of it as low-cost web advertising. When I asked my Bing search engine about trends in the field, Splunk got the top hit with a report on foundational DevOps practices.
That’s no mean feat, considering who the firm is going up against. Both Microsoft Corp. (NASDAQ: MSFT) and International Business Machines Corp. (NYSE: IBM) offer DevOps packages.
But Splunk stands out for a very good reason. It’s the best of breed in the “Fast & Furious Software” field.
Then again, DevOps is in its DNA. It began by specializing in machine data that comes from a plethora of digital devices like smart phones and tablets. Corporations turn to Splunk to make sense of data too complex to sift through on their own.
Founded in 2003, Splunk started making money less than six years later, a rarity among growth-centric startups. The company went public in 2012 and has amassed a strong earnings record.
I’m not surprised. That’s what you get when the top management team is staffed with savvy tech veterans. We’re talking the likes of IBM, Cisco Systems Inc. (NASDAQ: CSCO), Oracle Corp. (NYSE: ORCL), Thomson Reuters Corp. (NYSE: TRI), and Yahoo!.
Along the way, Splunk has won a series of awards and accolades that run several web pages long. No less an authority than Forbes named Splunk one of the top growth firms in the world last year.
Though it has great organic growth, the firm stays ahead of key tech trends by making savvy bolt-on mergers. Splunk has bought at least 10 other firms since the fall of 2013, using them to add new products like artificial intelligence and enter new markets.
With so much momentum behind it, no wonder the firm is growing so quickly.
Over the past three years, per-share earnings have averaged annual gains of a stunning 112%. That’s more than three times faster than its sales growth.
Over the past year, the stock is up 18.5%, more than double the S&P 500.
And with impressive earnings growth behind it, Splunk should continue to crush the broad market for many years to come.
Add it all up and you can see that our DevOps leader will put you in the fast lane on the road to wealth.
— Michael A. Robinson
Source: Money Morning