2022 was a terrible year for tech stocks, but 2023 is shaping up to be different.
Even as recessionary warning signs are flashing and tech-centric banks like Silicon Valley Bank (under parent company SVB Financial Group) and Signature Bank have gone under, investors have bid up tech stocks this year, with the tech-centric Nasdaq up 17% year to date.
If you're looking to capitalize on the recovery, keep reading to see two tech stocks that look ready to surge.
Image source: Getty Images.
1. Okta
Okta (OKTA -0.89%) is the leading independent provider of identity software for the cloud. The company provides tools like single sign-on and multifactor authentication that help employees and customers seamlessly and securely log in to the websites and applications they need.
Like other software stocks, Okta shares fell sharply last year. The company acknowledged missteps with its acquisition of Auth0 as it struggled to integrate its sales force, and it stepped back from its fiscal 2026 forecast that called for $4 billion in revenue and $800 million in free cash flow.
However, since that reset, the business has stabilized and the stock is starting to rally. In fact, Okta shares are up roughly 75% from their lows late last year after the company beat expectations in two straight earnings reports as it sharpened its focus on profitability.
In its fourth-quarter earnings report, the company smashed expectations, posting revenue of 33% to $510 million, better than estimates at $489.3 million. On the bottom line, its performance was even more impressive relative to expectations as the company reported adjusted earnings per share of $0.30, compared to estimates at just $0.09.
The report also made clear that Okta has responded to the market's changing demands, ramping up profitability, even as revenue growth slows, and it has been rewarded for that.
Over the long term, the stock could continue to gain as Okta is penetrating an $80 billion addressable market. It's rolling out privileged access management, a product that a lot of its customers have expressed an interest in. It also recently gained FedRAMP high authorization, allowing it to compete for high-value contracts with the Department of Defense and other agencies, and the stock still looks reasonably priced at a price-to-sales ratio of 7, considering its long-term growth prospects.
Don't be surprised to see Okta continue its bull run from here.
2. Pinterest
Another tech stock that looks like it's ready to wake up from a long slumber is Pinterest (PINS -0.64%). Shares of the social media company have fallen roughly two-thirds from their peak more than two years ago.
Like other social media stocks, Pinterest has struggled with a slowdown in advertising demand. Businesses have been wary of a recession and consumer spending habits have shifted away from categories that play to Pinterest's strengths like home goods, and toward areas like travel and restaurants.
In the fourth quarter, revenue growth slowed to just 4%, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell from $442 million to $196 million.
While the company's headline numbers may not wow investors, Pinterest continues to make investments in its platform that should pay off over the long term. The company is expanding with new products like its collage-making app, Shuffles. Furthermore, it's improving monetization, ramping up video content, and improving integrations with key partner platforms like Shopify.
Because of the nature of its platform, Pinterest has a number of advantages over typical social media companies. The platform, which is based on image discovery, provides a unique service for users and lends itself well to e-commerce and advertisers as many of its users come to the platform with purchase intent.
While 2023 may be a tough year for revenue growth given the macroeconomic climate, Pinterest has cut costs through two rounds of layoffs, and the company looks set to expand its profitability this year based on its guidance.
Once advertiser demand returns, Pinterest stock could really take off in the coming years as the company improves profitability and grows its user base.
