2022 was a brutal year for the stock market, and especially for the technology sector, with the Nasdaq-100 index plunging 33%. But consecutive down years are incredibly rare -- in fact, it has only happened once for the Nasdaq-100 in 36 years, and that was during the tech crash between 2000 and 2002.
What might be in store for 2023? With inflation steadily trending down since June last year, it's possible that interest rates will stop rising in the next few months, which could take pressure off the economy and give the stock market the green light to move higher.
The odds suggest this will be a positive year for the broader market, which is why investors shouldn't wait to buy in. Here are two growth stocks to start with.
1. Snowflake is partnered with Amazon, Microsoft, and Google
Snowflake (SNOW 0.55%) has quite a few things going for it. It operates in cloud computing, which is a major growth industry that helps businesses migrate their operations online. It's a market that could be worth $1.5 trillion annually by 2030, according to Grand View Research, and Snowflake is playing a unique role.
Large organizations often use multiple providers of cloud services, with the leaders being Amazon Web Services, Microsoft Azure, and Alphabet's Google Cloud. The trouble is, that can result in a company's data being siloed in different places, making visibility and access a little challenging.
Snowflake's Data Cloud helps to solve that problem by centralizing data, and it's partnered with all three of the aforementioned providers so their customers can share information across platforms. Plus, Snowflake runs a data marketplace where its users can buy, sell, and exchange data sets, which is yet another major benefit of being in its ecosystem.
The company has been on a hiring spree recently, adding 1,555 new employees in the first nine months of fiscal 2023 (ended Oct. 31). That's in stark contrast to the rest of the technology sector, which laid off an estimated 91,000 workers in calendar 2022, so it highlights Snowflake's optimism about the future of its business.
In the first nine months of fiscal 2023, Snowflake's revenue jumped 76% year over year to $1.47 billion. But more notably, its remaining performance obligations -- which represent its pipeline of work -- topped $3 billion for the first time, signaling that Snowflake's run of financial growth might be set to continue in 2023.
With its stock down 63% from its all-time high amid the broader tech sell-off, Snowflake might be the ideal company in the ideal industry to own this year.
2. Palo Alto Networks leads what might be the most important industry of 2023
According to a survey by global consulting firm PwC, corporate leaders consider cyber risk to be the greatest threat to their revenue. As a result, cybersecurity was one of the most critical industries of 2022 and many stocks in that sector outperformed the broader market.
But with the threat landscape growing more dangerous by the day, 2023 might be an even bigger year for Palo Alto Networks (PANW -0.15%), which is a leader in the industry.
The company sits atop 13 different cybersecurity segments, and operates across three core areas: network security, cloud security, and security operations. As mentioned above when discussing Snowflake, the cloud helps businesses operate online, which can involve storing their assets digitally and using dozens of web-based applications. Naturally, that makes the size of the attack surface virtually limitless because hostile actors can strike from anywhere in the world.
That's why cloud security is especially important. As one of the largest providers of cybersecurity, Palo Alto is trusted by a whopping 1,262 large organizations who each spend at least $1 million per year on the company's platforms, and that number continues to grow. But that's just one subset of its 80,000 total corporate customers.
In the recent first quarter of fiscal 2023 (ended Oct. 31), Palo Alto's revenue grew by 25% year over year to $1.6 billion. But its remaining performance obligations soared 38% to an all-time high of $8.3 billion, so the company is loaded up with work for the new year.
Plus, after investing heavily in growth for several years, Palo Alto is focusing on delivering profitability. The company succeeded in Q1 with $20 million in net income, which was a stark improvement from the $103 million net loss it posted in the prior-year period.
Palo Alto Networks stock was down 23% in calendar 2022, which might sound like a lousy return, but given the Nasdaq-100 lost 33%, Palo Alto outperformed the broader tech sector by 10 percentage points. If the economy does improve in 2023, combined with the strength of the cybersecurity industry, Palo Alto could be set for a year of solid gains.
