Tech giants like Amazon, Alphabet, and Microsoft have been excellent investments over the last decade, and all three stocks could certainly beat the market over the next decade. But investors should also ask themselves which companies could be the next generation of tech giants.
Cloudflare (NET +1.83%) and The Trade Desk (TTD 1.36%) have what it takes to be on the next-generation list. They have already carved out strong positions in their respective industries and possess a capacity for innovation that should drive growth for years to come. Here's why both stocks are worth buying today.
NYSE: NET
Key Data Points
1. Cloudflare: The fastest cloud network in the world
Cloudflare operates the fastest cloud network on the planet. Its platform shares direct connections with every major internet service provider, cloud vendor, and enterprise and can deliver content to 95% of internet users worldwide within 50 milliseconds. That advantage has made Cloudflare the leader in content-delivery network (CDN) software. While the company started as a security-focused CDN, it's quickly evolving into a cloud computing giant.
Cloudflare offers a broad range of security, network, and application services that accelerate business-critical software and infrastructure while eliminating the cost of on-premise network hardware. Its secure access service edge (SASE) platform, Cloudflare One, is a particularly noteworthy product.
SASE solutions quickly and securely connect users with corporate resources from any device or location and are the future of corporate networking and security. In fact, research company Gartner estimates that 80% of enterprises will adopt SASE products by 2025, up from 20% in 2021.
Cloudflare also operates the fastest developer platform on the market, Cloudflare Workers, which enables businesses to build performant applications, websites, and streaming experiences. In 2021, Forrester Research recognized Cloudflare as the leader in edge development platforms, citing a stronger current offering and growth strategy, compared to other vendors.
Cloudflare has since made its developer platform an even more compelling option by introducing two storage solutions: R2 Storage and D1 database. R2 supports the cost-effective storage of unstructured data like photos and videos, while D1 will allow developers to build applications without the complexity of deploying and managing the underlying database.
Not surprisingly, Cloudflare is growing at a rapid clip. Third-quarter revenue increased 47% to $254 million and the company reported positive cash from operations of $43 million, up from a $7 million loss in the prior year. But Cloudflare is still building steam, and patient shareholders have good reason to be bullish about its future.
Approximately 20% of the web already relies on Cloudflare security services to some extent, so the company has access to a profound amount of threat intelligence. That advantage should drive the adoption of its SASE platform in the future.
Meanwhile, Cloudflare is well-positioned to see greater adoption of its developer platform, especially with adjacent storage solutions now available. In fact, CEO Matthew Prince expects the D1 database to "quickly become one of the largest databases in the world."
Cloudflare currently values its addressable market at $125 billion, but that figure will continue to climb as the company develops new products. On that note, shares trade at 16.5 times sales, a fantastic bargain, compared to the three-year average of 41.7 times sales. That's why this growth stock is a screaming buy.
NASDAQ: TTD
Key Data Points
2. The Trade Desk: The leading independent adtech company
The Trade Desk operates the largest independent demand-side platform (DSP) in the adtech industry. Its software leans on powerful artificial intelligence to help marketers plan, measure, and optimize ad campaigns across digital channels like mobile, desktop, and connected TV (CTV).
Its DSP is also built on bid factors, a technology unique to The Trade Desk that allows marketers to set very detailed targeting parameters with just a few clicks. That typically translates into better campaign performance, compared to the line-item-based architecture used by competing DSPs.
Additionally, as an independent adtech company -- meaning it doesn't own any media content -- The Trade Desk has no reason to steer ad buyers toward any particular ad inventory. That makes its business model more transparent than ad giants like Alphabet's Google and Meta Platforms, both of which have a clear incentive to push marketers toward ad inventory on specific content platforms (e.g. Google Search and Facebook).
Financially, The Trade Desk is growing at a fantastic pace. Third-quarter revenue soared 31% to $395 million, and non-GAAP earnings jumped 44% to $0.26 per diluted share. Meanwhile, Alphabet reported ad revenue growth of just 3%, and Meta Platforms actually saw revenue drop by 4%. To that end, CEO Jeff Green said The Trade Desk gained more market share during the third quarter than at any point in its history.
Looking ahead, The Trade Desk is well-positioned to sustain its momentum. The company sources inventory from almost every ad-supported streaming service and partnered with Walt Disney last year to improve automated ad targeting across Disney-owned content.
The Trade Desk also has partnerships with 80% of the largest retailers in the U.S., and its technology forms the foundation of Walmart's adtech platform. CTV advertising and retail marketing are two of the fastest-growing segments of the digital ad market.
More broadly, global digital ad spend is expected to grow at 9.2% annually to reach $1.3 trillion by the end of the decade. That puts The Trade Desk in front of a massive market opportunity. And with shares trading at 15.1 times sales, a discount to the three-year average of 30.4 times sales, investors should jump on this buying opportunity.
