The market has seen its share of turmoil in 2022. First, inflation fears caused a massive sell-off in growth and tech stocks. Then Russia began military action against Ukraine. After an initial drop, the market made a furious comeback as much of the world has imposed sanctions against Russia.
Still, the tech-heavy Nasdaq, as the Invesco QQQ Trust (QQQ -0.41%) shows in the chart below, is in correction territory. Does this mean investors should abandon their technology stocks? Of course not. This dip in the market is temporary, and the two stocks below can outpace the market well into the future.
QQQ data by YCharts.
1. Amazon
Amazon's (AMZN -1.33%) recent struggles are no secret, but what exactly has caused the company's recent difficulty? The online retail side of the company has been hit with several headwinds that have crimped profits even as sales have soared. The tight labor market in the U.S. meant that the company spent billions of dollars on wage increases and sign-on bonuses. This necessary expense should pay off in the future as a robust and committed workforce is crucial to operations.
Then, the company was hit with inflation pressures and a damaged supply chain due to COVID-19. Sourcing products became more complex, and adjustments to logistics caused cost pressures. The net result of the e-commerce headwinds meant that the North American and international segment's combined operating income fell year over year from 2020 to 2021. This is despite a 20% increase in sales for these two segments. The positive in e-commerce is that these temporary cost wrinkles will be ironed out, and then the company's profits could really take off.
Image Source: Getty Images.
The biggest reasons that the stock could significantly outperform the market in the long haul is due to the massive success of Amazon Web Services (AWS) and the burgeoning advertising business. AWS sales rose an impressive 37% in 2021 to $62.2 billion. And this segment is highly profitable with a 30% operating margin. All told, AWS accounted for 74% of Amazon's operating profit in 2021. The 37% sales increase in 2021 represents an acceleration of growth in AWS, as shown in the chart below.
Source: Amazon. Chart by author.
Amazon's massive growth in its digital advertising sales will also be a crucial component of its long-term business. This revenue line grew an incredible 58% in 2021 to reach $31.2 billion. This comes on top of a 57% increase in advertising sales in 2020. The combined force of the e-commerce business, AWS, and advertising sales could mean serious returns for long-term shareholders.
2. CrowdStrike
Protecting companies, governments, and crucial infrastructure are vital to our security and prosperity. After the SolarWinds hack and Colonial Pipeline ransomware attacks, President Joe Biden summoned tech leaders to Washington, D.C. to discuss cybersecurity. An executive order was issued identifying the problem as a federal priority and noting that a public-private partnership was required.
In the last week, we have seen the Russians use cyberattacks on Ukrainian banks and government sites as part of their tactics. Banks in the U.S. and Europe were also instructed to be on high alert for possible retaliatory cyber strikes.
CrowdStrike (CRWD -1.98%) is on the front lines in this fight with its stated mission, "We stop breaches." To do this, its cloud-based security platform uses artificial intelligence to identify and mitigate cyber threats.
CrowdStrike also provides endpoint protection, increasingly important due to the acceleration in the number of employees working outside of the office. The federal Cybersecurity and Infrastructure Security Agency has selected CrowdStrike as one of the major platforms to protect endpoints and workloads of federal agencies.
Given the massive demand for cybersecurity, it is no surprise that CrowdStrike's customer base is rapidly expanding and includes 63 of the Fortune 100 and 14 of the top 20 banks. The chart below illustrates the rise in subscription customers.
Source: CrowdStrike. Chart by author.
Sales have risen along with customers, and CrowdStrike surpassed $1.5 billion in annual recurring revenue in the third quarter of fiscal 2022, an increase of 67% year over year. This revenue growth is likely to continue as the company consistently posts a dollar-based net retention rate (DBNR) above 120%. A DBNR above 100% indicates that existing customers are spending more with the company each period. This is a clear sign that customers are satisfied with the service and will continue using the platform.
CrowdStrike stock has struggled so far in 2022. Shares are currently down more than 10% year to date and nearly 40% down from its 52-week high. The company will report fiscal-year 2022 earnings on March 9, after market close, which may provide a catalyst for the stock.
While the short-term price movements of the stock are unclear, CrowdStrike has powerful secular tailwinds and could reward long-term investors for many years to come.
