Gold is at all-time highs, oil is rallying due to the military conflicts, and many companies are getting disrupted by AI.
It's more important than ever to own heavy moat companies.
Here are my top 10 ideas for companies with the strongest moats:
Competitive Moat: Amazon is an ecosystem of integrated tech businesses.
Its marketplace receives more than 300 million monthly visits. This creates a flywheel:
- High traffic attracts more sellers to the platform.
- More sellers mean competition and lower prices.
- Lower prices attract even more traffic.
It has spent decades and tens of billions of dollars to create the e-commerce infrastructure to support this.
An average Amazon distribution center costs $250 million to build, and Amazon has over 120 centers in the US.
On top of that, it has the largest cloud business in the world and the third-largest digital advertisement business.
It has the strongest moat I currently see.
- 5 year revenue CAGR: 13%
- Gross margin: 48%
- Forward P/E: 34
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2. $Meta Platforms, Inc.(META)$
Competitive Moat: Meta owns the largest social media platforms in the world.
It has over 3.4 billion monthly active users, creating wide network effects that are impossible to match.
Its double-sided network characteristics enhance this effect.
More users don't just attract more users; they also attract more advertisers.
As the number of advertisers increases, META makes more money and creates more valuable services for the free side of its network.
What's even better is that social networking won't be disrupted by AI, but it'll significantly benefit from it.
- 5 year revenue CAGR: 17%
- Gross margin: 81%
- Forward P/E: 27
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Competitive Moat: The largest e-commerce marketplace in Latin America.
It also transformed into a diversified tech ecosystem just like Amazon.
It also owns the second-largest fintech business in Latin America, which is integrated into its e-commerce marketplace.
It also operates a logistics business just like Fulfillment by Amazon, which acts as a significant exit barrier for its merchants.
As the competition among the merchants on the platform intensifies, prices drop, and more users are attracted to the platform.
Challenging it is neither easy nor viable in its own geography.
- 5 year revenue CAGR: 17%
- Gross margin: 81%
- Forward P/E: 27
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Competitive Moat: American Express owns and runs its proprietary payment network.
Different from Visa and MasterCard, it's not just a processor; it's both issuer and acquirer.
This allows it to capitalize on its network, once through issuing cards and charging fees, and also by cutting commissions for processing.
Its user base has traditionally been wealthier than that of Visa and MasterCard, which enables it to get less influenced by both inflationary and recessionary periods.
- 5 year revenue CAGR: 17%
- Gross margin: 64%
- Forward P/E: 18
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Competitive Moat: It's the leader in the data center GPU market.
Its GPUs aren't just superior to the competitors in terms of hardware, but its software stack is also dominant.
CUDA is a framework for parallel computing applications that is dominant in the industry.
It's so commonly adopted by the developers that they don't want to switch to competitor products even if they promise a similar performance.
Even when competitor products are offered at cheaper prices, efficiency gains from CUDA and NVLink are so big that total cost of ownership of data centers powered by Nvidia GPUs is much cheaper.
- 5 year revenue CAGR: 67%
- Gross margin: 70%
- Forward P/E: 29
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Competitive Moat: It's the sole manufacturer of extreme ultraviolet lithography machines (EUVL) that are essential for the manufacture of advanced chips.
These machines are composed of more than 100,000 parts, and they're as big as a two-story bus.
ASML directly owns some of the companies that design and manufacture essential parts for the machine, preventing other companies from developing their own machines.
Its closest competitors are in China, and they are at least 10 years behind of ASML.
- 5 year revenue CAGR: 16%
- Gross margin: 52%
- Forward P/E: 28
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7. $Taiwan Semiconductor Manufacturing(TSM)$
Competitive Moat: The largest foundry in the world.
It manufactures 90% of the most advanced chips in the world, including all chips for $AAPL and $NVDA.
Its yields are 20% and 50% higher than those of Samsung in 3nm and 2nm nodes, respectively.
It is the only foundry to have started the development of 1nm process.
With this technological superiority, it's at least 3 years ahead of the closest competitor, Samsung.
- 5 year revenue CAGR: 18%
- Gross margin: 57%
- Forward P/E: 16
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Competitive Moat: It has the dominant search engine in the world and the dominant video sharing platform.
Though search as we know it will likely disappear in the course of the next decade, Google has a good chance to also dominate what replaces it by simply adding it on the current Google domain.
YouTube is also the dominant video-sharing platform, and it has a larger share of TV time than all other competitors, including Netflix.
Its cloud business is also the fastest growing among the large providers.
This turns Google into a tech ecosystem of interconnected businesses.
- 5 year revenue CAGR: 17%
- Gross margin: 58%
- Forward P/E: 19
Competitive Moat: The largest digital bank in the world and the biggest commercial bank in Brazil.
Over time, it also integrated other businesses like a marketplace into its ecosystem, which drastically increases customer utility.
Its scale and fully digital model allow it to operate more efficiently than traditional banks. It passes some of these efficiencies to customers by charging lower fees and relaxing its credit conditions a bit to expand access to financial services.
As it's already the largest digital bank in the world, no business in its region has a chance to match its efficiency levels, so challenges from competitors are generally very weak.
- 5 year revenue CAGR: 49%
- Net profit margin: 30%
- Forward P/E: 20
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10. $Uber(UBER)$
Competitive Moat: It's one of the largest multi-sided platforms in the world.
One side is the drivers, and the other is the users.
More drivers on the platform attract more users, and more users again attract more drivers.
This is an incredibly hard network effect to overcome.
It's completing over 750 million trips every week.
Given this scale and the large number of countries it's active in, it's very hard to replicate this network. This is why I believe even robo-taxi businesses will pick $UBER as their distribution partner, expanding into new markets.
Otherwise robo-taxi business risks being a loser's game.
- 5 year revenue CAGR: 39%
- Net profit margin: 33%
- Forward P/E: 29
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