Technology stocks are showing signs of recovery in 2023 amid cooling inflation, a new growth catalyst in the form of artificial intelligence (AI), and a reduction in the pace of interest rate hikes by the Federal Reserve. These factors have sent the Nasdaq-100 index up close to 20% so far this year.

It is worth noting that the tech-laden Nasdaq-100 is up 22% since hitting a low on Dec. 28, 2022. This indicates that the Nasdaq may have already entered a bull market, which usually represents a sustained rally of at least 20% in stock prices. Also, history suggests that the Nasdaq could end 2023 strongly following last year's terrible performance.

These indicators are part of why investors looking to buy a growth stock may want to buy shares of cloud-based data streaming platform provider Confluent (CFLT 0.56%). This fast-growing cloud company lost 39% of its value in the past year, but it is expected to soar big-time in the next year and beyond. A bull market could give Confluent stock a nice shot in the arm and help it deliver a healthy upside. Let's see why that may be the case.

Confluent is growing at a terrific pace despite headwinds

Based on a consensus of 20 Wall Street analysts covering Confluent, the stock has a median 12-month price target of $29.50. That would translate into a 26% jump from current levels. The stock's Street-high price target of $36 points toward a 53% rally from current levels. It won't be surprising to see Confluent stock hitting those levels given the impressive pace at which the company is growing.

Confluent provides a cloud-native, fully managed data streaming platform that allows customers to connect and process their data in real-time. The company says that it is targeting a new data infrastructure category known as data in motion, a concept that allows organizations to generate real-time insights from data instead of analyzing it later.

Confluent estimates that there is a huge market for its offerings. By 2025, company management sees a $100 billion revenue opportunity emerging in the data streaming space. That would be a nice jump from the $60 billion addressable opportunity the company was sitting on in 2022.

Given that Confluent generated $586 million in revenue in 2022 -- an increase of 51% over the prior year -- it can be said that it still has a lot of end-market opportunity to tap. In 2023, management expects $762.5 million in revenue at the midpoint of its guidance range. That would be a 30% jump over last year. While that would represent a marked slowdown from 2022, it is still commendable considering the macroeconomic headwinds impacting Confluent's business in the near term.

CEO Jay Kreps pointed out on the company's January earnings conference call that customers took longer to close deals as they scrutinize their budgets more closely in an inflationary environment and monitor the Federal Reserve's prime lending rate adjustments. However, Kreps added: "Our overall win rate remains robust, our pricing is steady, and we have been able to close a substantial amount of deals pushed from prior quarters. This is quite encouraging because it reflects the strong vote of confidence by our customers in the strategic value and cost savings our platform brings to them."

The good part is that the deals that Confluent saw being delayed in the fourth quarter of 2022 were closed in the first quarter of 2023. It is also worth noting that the company drove stronger spending from its existing customer base. The company posted a dollar-based net retention rate of just under 130% in the fourth quarter of 2022. That's a healthy reading as this metric compares the annual recurring revenue (ARR) generated by Confluent's customers in a quarter to the ARR generated from the same cohort of customers in the year-ago period.

A reading of more than 100% means customers increased their adoption of the company's offerings. The bump in customer spending is also evident from the 35% year-over-year increase in the number of customers who generate at least $100,000 in ARR for Confluent. This exceeded the 31% year-over-year growth in Confluent's overall customer base.

The nice jump in Confluent's customer base and higher spending led to a 48% year-over-year jump in the company's remaining performance obligations (RPO) in Q4 2022 to $741 million. RPO measures the amount of contracted future revenue that the company has yet to recognize. What's more, the jump in the RPO was greater than the 41% increase in the company's quarterly revenue, indicating that Confluent has a solid revenue pipeline for the future that should translate into strong top-line growth in the next couple of years.

CFLT Revenue Estimates for Current Fiscal Year Chart

CFLT Revenue Estimates for Current Fiscal Year data by YCharts

The stock could deliver stronger-than-expected gains

The chart above indicates that Confluent's revenue could jump to nearly $1.24 billion two years from now, though it won't be surprising to see the company clock faster growth as the macroeconomic pressures ease. The stock is trading at 11 times sales right now. While that's expensive, it is still cheaper than other fast-growing cloud stocks such as Snowflake and Cloudflare, which sport price-to-sales ratios of 22 and 20, respectively.

Confluent could continue to command a sales multiple of 11 after two years, especially considering the multibillion-dollar market opportunity it is sitting on and the pace at which it is growing. If it delivers $1.24 billion in revenue in 2025, its market capitalization could jump to just over $13.6 billion. That would be double Confluent's current market cap, suggesting that it could deliver a much stronger upside than what Wall Street is currently anticipating. So, investors looking for a growth stock should consider buying it before it starts soaring.