With bearish pressure crushing valuations for many tech stocks over the last couple of years, you don't have to look hard to find stocks that have seen dramatic falls from previous highs. Some of these companies should eventually see their valuations rebound and go on to reach new heights, delivering incredible gains for investors who buy at the right times.
For growth-oriented investors, backing top companies on track to benefit from unfolding trends could be a path to life-changing returns. With that in mind, read on for a look at two companies operating in one of today's most important industries that could see their valuations quadruple (or more) by the end of the decade.
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1. CrowdStrike
With digital transformation trends increasingly pushing commerce and communications to digital channels, cybercriminals have growing incentives to breach networks. CrowdStrike's (CRWD 0.08%) Falcon endpoint device protection platform helps ensure that computers, mobile, devices, servers, and other hardware can't be used as portals for carrying out attacks. Having high-performance cybersecurity protection in place has never been more important for businesses and institutions, and CrowdStrike's leading position in the endpoint protection market has the business benefiting from surging demand.
The company grew its total subscription customer count 44% year over year in its third quarter, and customers that were already using its platform increased spending on its services by more than 20% compared to the prior-year period. Spurred by these catalysts, the company's revenue climbed 53% year over year in the period to hit $581 million, net income jumped roughly 134%, and free cash flow rose 41%.
As impressive as the company's expansion has been thus far, it looks like CrowdStrike's growth story is still in its early innings. Through a combination of growth for its existing service offerings and new product launches, growth initiatives, and expansion to seize new cloud-based cybersecurity opportunities, CrowdStrike estimates that its total addressable market (TAM) will have expanded from $76 billion in 2022 to $158 billion in 2026.
Even with very strong business performance, CrowdStrike has gotten caught up in the broader valuation pullback for growth stocks, and its share price is down 60% from its peak level. Nevertheless, as its business already enjoys strong momentum, plus incredible growth opportunities ahead, I think CrowdStrike offers one of the best overall risk-reward profiles for investors seeking stocks capable of quadrupling by 2030.
2. Cloudflare
Cloudflare (NET -0.93%) is an essential service provider for the world's modern web-and-applications services ecosystem. The company's software for protection against distributed denial of service (DDoS) attacks helps ensure that a flood of spoofed service requests can't overload internet servers. In addition, its content delivery network (CDN) software helps accelerate the rate at which information can be sent and accessed around the web. Between its DDoS protections, CDN solutions, and other web services, Cloudflare currently has more than 162,000 paying customers, and it's been growing its business at an impressive pace.
From 2017 through 2022, Cloudflare grew its revenue at a 49% compound annual growth rate. While the law of large numbers would tend to suggest that the company would be seeing significantly smaller growth toward the end of that period, keep in mind that the business actually managed to grow revenues by 49% last year.
NET Revenue (Quarterly) data by YCharts
Even with macroeconomic challenges on the horizon, Cloudflare expects to increase revenue between 36% and 38% this year.
Cloudflare estimates that it had a total addressable market of $115 billion last year, which means that it captured less than 1% of the target market in 2022. The company's management estimates that its TAM will increase to $125 billion this year and then to $135 billion in 2024.
Having a large and growing addressable market is great news, and the fact that Cloudflare's revenue is expanding at a much faster clip than its TAM growth is even more encouraging. Management expects the business to reach an annualized revenue run rate of $5 billion at the end of 2027, and it should still have plenty of room for continued growth from there.
Down roughly 73% from its all-time high, Cloudflare stock looks like a great buy for long-term investors. The company's share price would need to climb roughly 9% from its previous peak in order to quadruple from today's prices. I expect the stock to hit that target before the decade is out.
