Over the last few quarters, tech investors have watched their investments go nowhere but down. While this may cause some grief (which is perfectly normal), long-term investors should be thinking differently. If you don't need the money for many years down the road, then today's stock prices should be viewed as a sale. As the old investing adage goes, if you like the stock at $100, then you'll love it at $50.
The market is filled with buying opportunities, but the three stocks I have my eye on are Nvidia (NVDA 1.81%), CrowdStrike (CRWD 2.15%), and Datadog (DDOG 3.61%). All three companies have fallen victim to the market sell-off, but the businesses have multi-year opportunities ahead of them. As an investor, it is vital to understand the difference between stock and business sentiment.
Nvidia invented the graphics processing unit (GPU) back in 1999 and revolutionized the computing industry forever. With its supreme processing capabilities, these GPUs can render graphics, power data centers, and solve complex engineering simulations. Nvidia is widely considered the GPU leader, and its products have been used in record-setting DNA sequencing times as well as Meta Platform's AI Research SuperCluster.
For Nvidia's 2022 fiscal year (ended Jan. 30, 2022) the company generated $26.9 billion in revenue, up 61% year over year. It also reported a 36.2% net income margin, showcasing its impressive profitability. With the company projecting 43% revenue growth in its fiscal first quarter, management believes the business still has plenty of room to grow.
But with the stock trading around 69 times trailing earnings, it is by no means cheap. However, the market believes Nvidia's market opportunity is broad, and the company is strategically placed to capture it. The last time Nvidia traded at this earnings multiple was July 2020. Since then, the stock has gained 180%, teaching investors a lesson that valuation isn't everything.
In an increasingly digital modern world, cybersecurity has never been more important. CrowdStrike's offering is run through the cloud and protects endpoints (like laptops or phones) from dangerous attacks. With more than 20 modules ranging from threat hunting to attack forensics, CrowdStrike has its customers covered across multiple areas.
Fiscal 2022 (ended Jan. 31, 2022) was a phenomenal year for Crowdstrike with its annual recurring revenue (ARR) increasing 65% to $1.73 billion alongside 65% subscription customer growth from 9,896 to 16,325. The company also converted nearly 30% of revenue into free cash flow during the most recent quarter, showing investors it doesn't need outside funding to sustain its operations.
The cybersecurity market is full of competitors and allies. While Crowdstrike competes against upstarts like SentinelOne, it has a significant headstart and has captured 15 of the top 20 banks as well as 254 of the Fortune 500. It also partnered with Cloudflare to ensure device security for anyone accessing services hosted by the latter. Cybersecurity is a huge market, and Crowdstrike is one of the top players.
With more and more software making business easier, monitoring how each one is functioning and feeding information to each other has become more difficult. Fortunately, Datadog offers a solution to see how a company's technology stack is functioning at any given time. Furthermore, through artificial intelligence (AI) and programming, Datadog can solve problems before anyone notices there is one.
Datadog's most recent earnings report was impressive for many reasons. First, the company grew its full-year revenue to $1.03 billion, up 70%. What makes this more impressive is the fact fourth-quarter revenue grew even faster at an 84% pace. While many companies enjoyed an initial COVID spending boost with revenue growth then trailing off, Datadog's has accelerated.
Second, the company saw the number of customers with $1 million or more in ARR more than double to 216. With its large customer count rapidly rising and management projecting 69% growth for the latest quarter, Datadog is in a prime position to execute in 2022.
Working with the world's largest cloud infrastructure provider, Amazon Web Services (AWS), provides a huge customer boost for Datadog. The two announced a global partnership during the fourth quarter to work closer together in product development. While this is a strong alliance, it could also be a risk if Amazon decided to cut ties with Datadog. The odds of this happening are slim, but it is something investors should be aware of.
With all three stocks down over 20% from their all-time highs, investors have an opportunity to pick up three leading businesses at a discount. These companies will likely be bigger and more dominant in the next three to five years, and owning the stocks gives you a chance to capitalize on that expansion.