The technology sector of the stock market is off to a roaring start in 2023, with the Nasdaq-100 index gaining 25% so far, but it's still down from where it was in early 2022. After a 33% drop in 2022, some investors are still wary of the Nasdaq-100 bear market, but the index has an impeccable track record of bouncing back following a down year. In fact, it has only declined in consecutive years on one occasion dating back to 1986, and that was during the dot-com tech bust from 2000 to 2002.
Therefore, it appears likely the index's recent surge is a precursor to the next bull market. Here are two stocks to buy before it gets here.
1. Datadog
Nearly all businesses are using cloud computing technology. But larger, more complex organizations lean on it more heavily to connect their global teams, streamline workflows, and run their digital sales channels. As a result, they're faced with significant challenges when it comes to managing data and monitoring all of that cloud infrastructure, which is why they're flocking to Datadog (DDOG 3.50%).
Datadog is the ultimate cloud monitoring tool; it crawls a company's networks around the clock searching for bugs and technical issues. If, for example, a particular webpage is down in just one country, Datadog alerts the business to immediately implement a fix. If that same business relied upon manual processes, it may have been days or weeks before the problem was spotted -- or worse, it might have only found out upon receiving customer complaints.
Datadog is used by 25,500 businesses across several different industries, from real estate technology company Zillow Group to entertainment and streaming giant Comcast. Wherever complex cloud networks exist, Datadog has a potential customer.
At the end of the first quarter, there were 2,910 Datadog customers spending a minimum of $100,000 per year. That was a 29% year-over-year increase, which further highlights the growing demand for cloud monitoring tools among large organizations. Datadog's Q1 revenue came in at $482 million, up 33% and well above its guidance. As a result, the company increased its 2023 full-year revenue forecast to $2.1 billion (from $2.09 billion previously).
An estimate by Grand View Research suggests the cloud industry's revenue will grow by 151% over the next seven years, reaching more than $1.5 trillion by 2030. That means the number of companies requiring cloud monitoring tools will likely grow just as quickly, which is great news for Datadog.
Since the stock currently trades 51% below its all-time high amid the broader tech bear market, now could be a great time for investors to buy in.
2. Tenable
Fifteen years ago, most of a company's critical infrastructure was stored physically on-site, and valuable digital assets were saved locally as opposed to online. Since it's so cost effective to use large providers of cloud services now, organizations are vulnerable to attacks around the clock.
That's where Tenable (TENB 2.64%) comes in. It's the leading provider of vulnerability management software in the cybersecurity industry, serving more than 40,000 businesses worldwide. The company offers a broad solution called Nessus, which can be customized to suit the needs of any organization. The company says it is the most accurate vulnerability management tool in the industry, and it also offers more coverage than all of its competitors by protecting against over 76,000 common vulnerabilities and exposures.
Tenable also offers a range of industry-specific software for businesses operating in everything from automotive manufacturing to retail to healthcare. The company says a single minute of downtime for a carmaker can result in a $22,000 loss, and 82% of them have experienced at least four hours of downtime over a 12-month period -- that's why advanced cybersecurity tools are so important.
At the end of the first quarter, Tenable had 1,444 customers spending a minimum of $100,000 annually, up from 1,112 a year ago. Like in Datadog's case, this points to growing demand from larger organizations using more complex cloud networks. The company delivered $189 million in revenue in Q1, up 18% year over year and above its guidance. However, it reduced its full-year revenue forecast from $810 million to $785 million amid challenging economic conditions, including inflation.
However, Tenable is trying to expand its addressable market with its brand-new Tenable One platform, an all-in-one product targeting large companies seeking to consolidate their cybersecurity stack with one provider. Over the long term, this should offer a boost to the company's growth.
With Tenable stock down 38% from its all-time high, investors might want to take this opportunity to buy in.
