Building generational wealth doesn’t happen very often. Only 27% of people whose parents have college degrees have received an inheritance of any kind in 2019, according to the Federal Reserve’s Survey of Consumer Finances. If your parents didn’t go to college, your odds are slightly worse. And the median inheritance received from college-degree parents was only…
$92,700. That amount is nothing to sneeze at, but there’s taxes to think about. Moreover, this is the median inheritance. By definition, half of the people who did receive an inheritance received less than this.
The point is, the vast majority of us haven’t and probably won’t be receiving generational wealth from our parents. And this reality from the past can’t be changed. But we can do something about the future by building wealth to pass on to the next generation by saving and investing our own incomes now.
Of course, if you’re looking for stocks you can buy, hold, and pass on to your heirs, then you need to find companies that are unstoppable. For me, Unity Software (NYSE:U), Axon Enterprise (NASDAQ:AXON), and Lam Research (NASDAQ:LRCX) are three companies that might fit this description. These aren’t necessarily three stocks with the highest upside. Indeed, they might struggle to beat the market average some years. But I do expect them to have greater longevity than many other stock options, so they’re perfect for building generational wealth.
Unity: The preferred platform to build the future
Unity offers easy-to-use software for creating three-dimensional (3D) content and developing ways for users to interact with these 3D images. Think broadly. This software has applications in gaming, animation, augmented reality, the metaverse, and more. And according to the company, over half of all 3D content built today is built using Unity.
There’s good reason to believe that Unity can keep its leadership position in the 3D space. Consider that the company doesn’t charge people for its software if they’re students or if their companies generate less than $100,000 in annual revenue. In other words, anyone new to the 3D game is very likely to choose Unity because it’s the industry standard and — more persuasively — it’s free. And once they create a viable business with over $100,000 in revenue, Unity can then start to profit as well.
This kind of value proposition for new creators is going to make Unity hard to stop. Furthermore, consider something interesting with the company’s business model: You can create mobile games, for example, with Unity. And creating things is recorded in the company’s Create Solutions segment, a subscription-revenue product. But once games are created, you can also use Unity to operate them and get them monetized, etc. This revenue is recorded in its Operate Solutions segment, and it’s not a straight subscription but rather a usage-based revenue model, meaning Unity makes more money as their customers succeed.
Unity is likely to attract a lot of creators because of its value proposition. These can then stick with Unity to operate their digital content. And assuming Unity does a good job here, its revenue has uncapped upside because it’s a usage-based revenue model. In the third quarter of 2021, Unity had a net-dollar expansion rate of 142%, which clearly demonstrates its customers are spending more money over time and its business model is working.
According to Unity’s management, only around 2% of the world’s digital content is currently made in 3D. It’s only reasonable to assume that this will increase substantially in coming years. I’ll refrain from giving a set-in-stone forecast. But if 3D content had 5% to 10% share, it would still be a relatively small part of the overall market. And in this scenario, Unity could more than double its business just by maintaining its leadership position in the space.
Axon: Making work easy and switching hard
If Axon Enterprise only offered Tasers to police departments, then this would be a fragile business. But its decision to offer software solutions in conjunction with its hardware devices has made this an unstoppable business in my opinion. Here’s why.
Axon’s Tasers are infrequent purchases with little recurring-revenue potential. But they do enjoy widespread adoption. In the U.S., 21% of law enforcement, federal, and corrections agencies, along with enterprises, are already Taser users, according to the company.
Brilliantly, Axon leveraged its existing customer relationships into streams of recurring revenue when it decided to develop software solutions. Law enforcement officers can now automatically have evidence backed up to the cloud. And artificial-intelligence (AI) software can quickly fill out tedious paperwork. It’s apparent its customers appreciate these software solutions because they’re increasing spending, as measured by its 119% net-dollar retention rate in the third quarter of 2021. Moreover, Axon’s hardware and software is increasingly a package deal. According to the company, 73% of total revenue in 2020 was tied to a subscription product.
Axon Cloud is the fastest growing part of…
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