2 Remarkable Growth Stocks Billionaires Are Buying in a Nasdaq Bear Market

The Nasdaq Composite dropped into a bear market last year as investors reacted to economic uncertainty. But many wealthy hedge fund managers treated the decline as a buying opportunity, and some of those billionaires scooped up shares of Fiverr International (FVRR 1.49%) and Arista Networks (ANET -0.39%).

For instance, Israel Englander of Millennium Management more than tripled his investment in Fiverr and Arista over the past year. Similarly, David Siegel of Two Sigma Advisers tripled his position in Fiverr, and Jim Simons of Renaissance Technologies doubled his position in Arista.

Are these two remarkable growth stocks still worth buying today?

1. Fiverr International

Fiverr is a foundational part of the gig economy. Its global marketplace connects businesses and freelancers, and its catalog covers hundreds of product categories across nine verticals: graphics and design, video and animation, music and audio, writing and translation, programming and tech, digital marketing, business, data, and lifestyle. Fiverr also provides value-added services to deepen its relationships with users on both sides of the marketplace.

For instance, freelancers can access contract management software, learning content, and marketing tools, and businesses can access collaboration tools and freelancer management software. Those value-added services help Fiverr monetize its marketplace very effectively. In fact, Fiverr achieved a take rate (revenue as a percentage of total spend) of 30% in the third quarter, while its competitor Upwork achieved a take rate of just 15.4%.

Unfortunately, economic uncertainty is taking a toll on the labor market. Many businesses paused hiring or even downsized their workforces in preparation for a possible recession, and that trend was a headwind for Fiverr in the third quarter. Active buyers on the marketplace increased by 3% year over year to 4.2 million, revenue rose 11% to $83 million, and non-GAAP net income climbed 10% to $0.23 per diluted share. All of those figures decelerated materially from the prior year when active buyers jumped 33% year over year, revenue soared 42%, and non-GAAP earnings increased 62%.

Fortunately, investors can chalk those disappointing results up to the difficult economy. Fiverr should have no problem reaccelerating growth when businesses begin hiring again. The company has hardly scratched the surface of its $247 billion market opportunity in the U.S., and the gig economy is only getting bigger. According to data posted on the Statista website, more than half of U.S. workers (or 87 million Americans) will work as freelancers in some capacity by 2027. That should be a big tailwind for Fiverr.

On that note, shares currently trade at 4.6 times sales, a discount to the three-year average of 18.6 times sales. At that price, investors should consider buying a small position in this growth stock today.

2. Arista Networks

Arista pioneered software-driven networking for cloud data centers, then extended its disruptive technology to enterprise environments and campus workspaces. Its portfolio includes switching and routing hardware, as well as adjacent software for network management, telemetry, and security. But its core innovation is the Extensible Operating System (EOS)

EOS is the software that runs across all Arista networking platforms. That single-product strategy differs from legacy vendors that use multiple operating systems, an approach that increases operational costs for customers. Arista applies the same principles to network management software; its CloudVision product enables networkwide telemetry and automation. That differs from legacy vendors like Cisco Systems which complicate workflows with multiple management systems.

In a nutshell, Arista allows clients to deploy a seamless network that integrates all of their IT infrastructure, from public clouds to private data centers, and it lowers the total cost of network ownership by running a single operating system and implementing a single network management product. Additionally, Arista provides networking platforms of unmatched performance, and that helped the company achieve a leadership position in the industry. Arista holds a 45% market share in high-speed data center switches (i.e. 100G, 200G, and 400G), while the next closest competitor is Cisco with an 18% market share.

Financially, Arista delivered solid results in the fourth quarter. Revenue increased 55% year over year to $1.3 billion and net income soared 80% to $1.35 per diluted share. That performance is particularly impressive because Arista is battling supply chain headwinds that caused gross profit margin to drop 300 basis points. The company is also contending with a difficult economic climate.

Looking ahead, Arista will likely see that momentum slow this year, but shareholders should still expect solid growth over the long term. The company's leadership in high-speed data center switching positions it to benefit from trends like cloud computing and artificial intelligence, both of which will put pressure on data center infrastructure, creating a need for faster networking solutions over time. To that end, Arista estimates that its total addressable market will grow at 13% annually to reach $51 billion by 2027.

Currently, shares trade at 10.2 times sales, which is in line with the three-year average. That creates a reasonable buying opportunity for investors.