Over the past decade, the S&P 500 has risen in price by nearly 275%, not adjusting for inflation. It's a solid benchmark for stocks to be measured against, and this benchmark is even outpacing the normal performance of the S&P 500.
But two stocks have what it takes to crush this impressive benchmark over the next decade, and if you invest in these stocks you have the potential to see amazing returns. Here's why I think Upstart Holdings (UPST) and Datadog (DDOG) are two of the best places I see for money to go today.
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1. Upstart
Shares of Upstart have been on a roller-coaster ride recently. The company -- which is bringing a different approach to loan determination -- is up nearly 260% year to date, yet shares at one point were up over 750% year to date.
This is for good reason. The company is pairing machine learning and artificial intelligence with the loan determination process. The company evaluates 1,000 variables and over 10 million repayments to determine creditworthiness, and its variables range from employment to application interaction. This process is unique compared to traditional processes that have a few dozen variables and rely mainly on the FICO score.
Because of its new approach, many smaller banks that are trying to offer credit to a wider population have rapidly adopted Upstart. The company's customer count nearly tripled year to date, and the company's trailing-12-month volume on loan decisions increased 120% from the year-ago period to $8.8 billion.
With less than $9 billion in volume, Upstart's growth runway is extremely large. The company is targeting a $5 trillion market, and its investments in engineering & development and sales expenses will likely allow it to gain market share. What's better is that even after spending over $130 million on these two expense categories in the third quarter, the company was able to bring nearly $29 million to the bottom line.
The company is not cheap. Upstart is valued at 21 times sales, but when I find a profitable company that is seeing adoption at the rate Upstart is, I tend to be more willing to pay up. Mainly because the investment is likely to be worthwhile for future returns. The investments it is making, along with its rule-breaking solution, make me incredibly excited to hold Upstart for the next decade and beyond.
2. Datadog
Datadog's specialty is in monitoring and visibility. It allows its customers to monitor their entire cloud presence for performance, engagement, and security. This complete monitoring platform uses data from over 10 trillion events daily to recognize patterns and allow businesses to take actionable insights when something might be wrong with their cloud platforms.
As the company gets more customers and they use more products -- which gives Datadog more data -- Datadog can give more accurate insight into the problems its customers might have. This means that the more customers use Datadog, the more effective and useful it is to everyone.
Datadog has done an excellent job of attracting new users and bringing existing users deeper into its ecosystem. The company has roughly 17,500 customers, which grew 34% year over year, and the number of products per customer has substantially increased. Seventy-seven percent of customers used two or more products, and 31% used four or more in Q3, compared to 71% and 20% respectively in the year-ago quarter.
Where the company shines is its product stickiness. The company added 10 new products and features to its platform in Q3 alone, and the strong customer adoption has benefited Datadog. Its net retention rate is over 130%, and the number of customers spending over $100,000 grew 66% year over year in Q3 to 1,800. With this kind of relationship expansion, it would be incredibly hard for a customer to switch away from using Datadog because so much of its business is already entrenched in the platform.
The company sees a current market opportunity of $38 billion, but that is expected to grow to $53 billion by 2025. It wouldn't be surprising to see Datadog grow that even further. The company has launched 19 products since 2019, and that probably won't stop. All of those products it launched undoubtedly increased its addressable market, and if this continues, the company's opportunity could be much larger than $53 billion by 2025.
If Datadog can continue adding products and gain increased adoption from existing customers, I think this company could continue to explode over the next five years. Shares have already increased over 360% over the past five years, but if the company can maintain expanding its market and capitalizing on its competitive advantages, I believe that shares could increase another 360% or more over the next five years.
