The benchmark S&P 500 index plunged more than 20% from its all-time high in 2022, officially placing it in a bear market. But it fully recovered its losses and set a new record high at the end of 2023 which sent the bear into hibernation. The bulls are now firmly in control, and the S&P 500 continues to march higher in 2024 with a 9.7% gain so far.
But some individual stocks are yet to reclaim their best-ever levels. Many software stocks, for example, soared during the worst of the pandemic as investors positioned themselves for the stay-at-home economy, only to plunge when conditions returned to normal.
Datadog (DDOG -1.92%) and Atlassian (TEAM -1.40%) are two great examples. Despite recovering from their 2022 low points, they're still trading 35% and 57% below their all-time highs, respectively. Here's why they could gain more ground this year and beyond.
Image source: Getty Images.
1. Datadog
Companies have to adapt to an increasingly digital world, where consumers value convenience above almost everything. Tech giants Microsoft and Amazon operate centralized data centers, and they rent the processing power to businesses to help them run their sales channels and customer experiences online at an affordable cost. This practice is called cloud computing.
But the cloud also creates complexity. Selling products in a physical store is straightforward, because an attendant is always present to monitor the process and gauge customer satisfaction. Digital sales channels, on the other hand, have blind spots. A business might not be aware its website isn't working for a specific group of customers in one region of the world until the revenue is already lost.
Datadog's cloud monitoring platform watches over the infrastructure of more than 27,300 businesses around the clock and immediately managers to technical issues so they can be rectified before hurting sales. Datadog's customers operate across retail, entertainment, gaming, financial services, and more.
Datadog recently introduced a virtual assistant powered by artificial intelligence (AI) called Bits AI, to help businesses draw more value from its cloud monitoring platform. It features a conversational interface designed to help managers investigate and rectify issues far more quickly. When Datadog identifies an incident, Bits AI can instantly write a summary and posts the information on employee chat channels, saving managers hours of work.
Datadog is also expanding into monitoring for AI developers. It offers new tools that track the performance and characteristics of large language models (LLMs) to drive better outcomes for the finished customer-facing applications. Datadog also offers observability tools for users of ready-made LLMs like those from OpenAI, to help businesses track their usage costs.
The company generated a record $2.1 billion in revenue during 2023, representing a 27% increase from 2022. It also delivered a modest profit of $48.5 million, which was a welcome swing from the $50.1 million net loss from the prior year. The result proves Datadog is capable of maintaining strong top-line growth while carefully managing costs to be profitable at the same time.
AI could drive significant long-term growth for Datadog just like the cloud has already, especially as adoption accelerates among businesses over time. AI developers represent only 3% of the company's annual recurring revenue right now, but investors should look for that number to increase rather quickly.
2. Atlassian
Atlassian is the developer of Jira and Confluence, the popular collaborative software tools used by over 302,000 organizations worldwide. The company continues to expand its product portfolio and it could be poised for strong long-term growth, with some help from AI.
Jira is a project management platform used primarily by software developers to create workflows, track bugs, and ship updates. Confluence has a broader use case, because it was designed to help teams collaborate on every facet of running their organization. Employees can use it to brainstorm ideas, discuss strategies, and make key decisions. Plus, teams can create dedicated workspaces to segment their content from the rest of the organization.
Last year, Atlassian released an AI assistant which it developed using a combination of its own AI models and those from OpenAI. It's called Atlassian Intelligence, and it's capable of drafting content and summarizing text to speed up collaborative efforts on Jira and Confluence. It can also act as a virtual agent to serve customers and employees, which could be a big cost saver for businesses in the long run.
Atlassian acquired video and AI platform Loom last year for $975 million. Loom allows users to rapidly create videos and screen recordings, which users can now attach to their posts in Jira and Confluence. It's hard to get clear instructions across with text alone, so Loom adds an important visual element to eliminate miscommunications. Loom also offers AI tools to help users quickly summarize their video, eliminate silent pauses, and add chapter labels.
Atlassian delivered over $1 billion in quarterly revenue for the first time in its history during the fiscal 2024 second quarter (ended Dec. 31). It marked a 21.5% year-over-year increase, which decelerated from previous quarters mainly because the company is carefully managing costs to improve its bottom line. Atlassian still lost $84 million in Q2, but it was an impressive 59% reduction from the $205 million net loss in the year-ago period.
As is the case with Datadog, AI could be a substantial growth driver for Atlassian over the long term. For example, Atlassian Intelligence is only available to customers on its Premium and Enterprise plans for Jira and Confluence, not on the cheaper Standard plan. That means businesses that want AI features -- and most of them will over time -- will have to pay up for Atlassian's most expensive tiers.
Therefore, the 57% discount in Atlassian stock from its all-time high could be the ideal entry point for investors who can hold for at least the next few years while the AI opportunity blossoms.
