Since the end of the Great Recession in 2009, it has been the tech sector driving growth on Wall Street. Demand for consumer electronics and related products and services has caused tech stocks to far outperform every other market segment.
Although driven in large part by stocks like Amazon.com and Nvidia, which gained over 2,300% and 5,600%, respectively, during that period, tech stocks lost their momentum last November. As investors transitioned to more defensive consumer staples due to rising interest rates, rampant inflation, and a stagnating economy -- which has made a recession seem more likely -- many previously high-flying names tumbled from their highs.
While many tech stocks seemed to gain their second winds in recent weeks and the sector bounced off its lows, there are still bargains to be found, and the following pair of tech stocks look like they're ready for bull runs.
Image source: Getty Images.
CrowdStrike
Last year was a banner year for cybercrime, with data breaches surpassing the previous record year by 23%, according to the Identity Theft Resource Center. As 5G networks allow more devices to access the Internet of Things, hacker attacks are only going to get worse.
That represents a significant opportunity for CrowdStrike (CRWD -3.09%), one of the leading cybersecurity stocks deploying sophisticated machine learning, artificial intelligence, and behavioral analysis to detect and thwart cybersecurity risks.
Data continues to migrate to the cloud as companies increasingly adopt digital and cloud-based solutions to enable a dispersed workforce to tap into their networks. It's up to other third-party providers to protect the data while still allowing for quick and efficient access. CrowdStrike achieves this through its Falcon platform, an AI-driven process that grows smarter over time as it oversees some 1 trillion events daily.
Corporate customers have responded. In just five years, CrowdStrike's subscriber count has catapulted from 450 to more than 16,325, and annual recurring revenue (ARR) is accelerating, growing 65% in the recently completed fourth quarter to over $1.7 billion. Equally important, customer retention stands at 98%, indicating that customers like what they find with the cybersecurity specialist.
That hasn't stopped CrowdStrike's stock from being pummeled. Even after jumping nearly 60% from the lows hit in February, the stock remains 25% below its 52-week high. Still, while it's not a cheap stock by traditional measures, trading at 35 times sales and over 100 times the free cash flow it produces, it could grow into that premium -- cybersecurity is no longer a luxury, but a necessity for business.
That's not changing any time soon, if ever, and CrowdStrike's robust chance of increasing its share in the market puts it on a path for a bull run from here.
Image source: Getty Images.
Meta Platforms
A lot of investors believe much of Meta Platforms' (META -2.28%) future growth potential lies in the development of the metaverse, the virtual world that is being created where people, companies, and brands can interact with one another. Bloomberg estimates the metaverse will become an $800 billion market by 2024.
Meta is also investing heavily in building out the metaverse and has begun breaking out results from its Reality Labs division. It's still small at the moment, bringing in just $2.3 billion when the company as a whole is reporting $117.9 billion in total revenue, and growth is going to come at a cost: The social media giant says its investments in virtual reality will weigh on cash flows for the next few years, though it should be able to coax a large portion of its users to it eventually.
Despite suffering its first sequential decline in user counts in 18 years, the company still has 1.9 billion daily active users on Facebook, and Instagram and WhatsApp both retain massive user bases of their own. Meta's family of social apps has over 3.6 billion users in total.
By prioritizing engagement over monetization on its Reels short-form video platform, it may be able to peel off growing numbers of TikTok users, even if it results in a short-term hit to revenue. And that's been the reason behind Meta's stock collapsing. Down 44% from recent highs, the discussions around the company have focused on slowing growth and delayed gratification on revenue growth, but that's where the opportunity comes in for investors.
Meta remains hugely profitable, generating $46.8 billion in operating earnings last year, for margins of 40%, two percentage points greater than in 2020.
With revenue growing at double-digit rates, massive profits, and some $33 billion in cash on its balance sheet, Meta Platforms is undervalued for all the potential it holds. It goes for 15 times earnings, just a fraction of its projected earnings growth rate, and 15 times its free cash flow. That gives it the ability to take the bull by the horns and charge ahead for years to come.
