All tech stocks are seemingly dropping, making it challenging to determine what innovative companies are worth buying today. The Nasdaq Composite index is down 23% year to date, and many individual stocks are down even more. However, some businesses are executing well: generating cash, expanding their operations, and evening gain market share, even as their shares continue to drop. This paints an appealing picture for long-term investors who can get in on these companies at rock-bottom prices today. Here's why tech stocks Roku (ROKU 3.71%) and Datadog (DDOG -0.41%) look particularly appealing right now, at 81% and 52% off their respective all-time highs.

Person watching TV.

Image source: Getty Images.

1. Roku

Shares of the streaming platform giant have flatlined over the past three years. This has been driven partly by supply chain constraints, which caused a spike in U.S. TV prices and subsequently brought TV sales below 2019 levels in Q1 2022. As a result, Roku has seen stagnant account growth: That same quarter, the company saw just a 14% year-over-year jump in its active accounts, which pales in comparison to the 35% expansion it saw in Q1 2021. 

Roku, however, is showing resilience during these turbulent times. It grew revenue by 28% year over year in Q1 to $734 million, while other streaming platforms struggled. VIZIO (VZIO 0.90%), which makes both TV hardware and its own streaming-video operating system, saw revenue decline 4% in Q1, which shows that Roku's competitive advantages allowed it to see more success than competitors, despite the macro challenges. 

One of Roku's primary advantages is its scale. It is the largest streaming platform in terms of hours streamed in the U.S., Canada, and Mexico, with nearly 21 billion hours watched globally in Q1 alone. Comparatively, VIZIO's smart TV offering recorded only 4.1 billion hours streamed for the quarter, just a fifth of Roku's.

Roku can use this dominance to become the preferred platform on which businesses want to spend their streaming ad budgets. In Q1, Nielsen reported that users spend 46% of their TV time streaming, but eMarketer reported that advertisers are spending only 18% of their TV ad budgets in that market. Roku's CEO Anthony Wood believes that these will eventually converge at 100%, and Roku is looking like one of the places that could benefit from this over the long term. 

To do so, it must remain one of the top dogs in streaming, and investors should make sure that the company posts continual improvements in its streaming hours and active accounts. At 4.4 times sales, Roku is trading at its lowest valuation since 2018. These are bargain prices, and you might regret not getting in at these valuations if the company can maintain its leadership and capitalize on the shift in ad spending over the long term. 

2. Datadog

Businesses relying ever more on digital data need to make sure those systems are always working as intended, and Datadog keeps watch for them. The company leads the application performance monitoring space, according to Gartner's (IT 1.67%) Magic Quadrant. The application monitoring space is expected to be worth $42 billion this year, yet Datadog projects just $1.61 billion in 2022 revenue. Clearly, there is room for Datadog to grow enormously from here, despite being the dominant force in the industry.

The company's dominance has come from its unrelenting focus on innovation. Datadog continuously creates new products and add-on features to make its platform more valuable to its customers. In Q1 alone, the company released one new product and expanded capabilities for another, showing that this focus is evergreen for Datadog.

These integrations, add-ons, and new products may seem minor, but the continuous nature of these innovations adds up. As Datadog creates more use cases, customers use more products and become more ingrained into the product ecosystem. At the end of Q1, 35% of customers used four or more products, an improvement from 25% in the year-ago period. This pays off by increasing stickiness and decreasing churn, which was in the mid- to low single digits in Q1.

The company faces intense competition from other players like Dynatrace (DT 0.39%), so creating more products, features, and use cases will be key. While this will be a risk to monitor, Datadog has the money to out-innovate its competitors, potentially allowing it to see more adoption as the space evolves. In Q1, Datadog generated $130 million in free cash flow, whereas Dynatrace generated just $82 million in free cash flow over the same period. 

Shares have been crushed, and now trade at 25 times sales. This is the lowest valuation the company has seen since mid-2020, making Datadog an appealing opportunity right now. If it can continue to innovate faster than its peers and increase customer engagement to gain market share, Datadog could be an amazing investment over the next decade.