After a less-than-stellar 2022, growth stocks have had an impressive 2023 so far. With inflation cooling, interest rate hikes potentially pausing, and artificial intelligence (AI) booming, investor sentiment toward growth stocks has seemingly shifted. If you're interested in growth stocks, here are three options to consider now.
1. Snowflake
Snowflake (SNOW 1.14%) is a data warehousing platform that allows users to combine and analyze cloud data from most major cloud platforms. Snowflake went public in September 2020, and since then its investors have experienced the roller-coaster ride that often defines growth stocks.
NYSE: SNOW
Key Data Points
Unsurprisingly, the company has been expanding its AI footprint recently, mainly via acquisitions. Snowflake has acquired four companies since 2023 started: Myst AI, SnowConvert, LeapYear Technologies, and Neeva. More AI and machine learning capabilities should help expand Snowflake's ecosystem and make it a more complete platform.
Snowflake's growing offerings seem to be paying off, judging by its 151% dollar-based net retention, meaning that customers are spending 51% more each year with the company. At the end of its fiscal 2024's first quarter (ended April 1), Snowflake had 590 customers in the Forbes Global 2000 and 373 customers spending at least $1 million annually (43 more than the previous quarter).
The company is attracting big clients with large checkbooks.
A downside to Snowflake is its stock's high valuation, even after falling over 55% from its November 2021 peak. Snowflake's price-to-sales (P/S) ratio -- which is a better measure than the price-to-earnings ratio for companies in high-growth mode -- is over 24. That's much higher than other big tech companies with their hand in the cloud industry.
Data by YCharts
Despite short-term problems it may run into, Snowflake is an attractive long-term option. It's a top player in an industry that's seemingly still in the earlier stages.
2. The Trade Desk
It's been a good 2023 for adtech company The Trade Desk (TTD 2.77%), with the stock up over 70% year to date (as of June 12). However, it still sits around 30% below its November 2021 high. Stock price aside, it continues to put up impressive financials at a time when macroeconomic conditions have cut many companies' ad spending.
NASDAQ: TTD
Key Data Points
The Trade Desk's Q1 2023 revenue was $383 million, which was up 21% year over year and outpaced Meta Platforms' roughly 4% year-over-year advertising revenue growth and a decline in Alphabet's Google advertising business.
As connected TVs (think: Roku, AppleTV, and Fire TV Stick) become more popular, the digital ad landscape should continue to expand, with The Trade Desk being one of its prominent leaders. A testament to the platform's staying power is The Trade Desk's 95% retention rate.
At current prices, The Trade Desk is far from cheap, but it's not the worst entry point for investors with time on their side. Long-term investors should use this chance to dollar-cost average their way into a stake in the company.
3. CrowdStrike
CrowdStrike (CRWD 0.13%) is a cybersecurity company progressively solidifying itself as one of the top players in the industry. In its first quarter of fiscal 2024, ended Jan. 31, CrowdStrike made over $692 million in revenue, and its annual recurring revenue was up to $2.73 billion -- both up 42% year over year.
Data by YCharts
This jump in revenue can be attributed to CrowdStrike's growing customer base, which went from 16,325 in fiscal 2022 to 23,019 in 2023, as well as the type of customers it's attracting (i.e., ones with big wallets). As of Jan. 31, 2023, 70 of the Fortune 100, 271 of the Fortune 500, and 15 of the top 20 U.S. banks were CrowdStrike customers.
Recent AI hype has made its way to the cybersecurity industry, but CrowdStrike has been using AI to power its platforms since it first launched in 2011. As large language models (LLMs) -- which require large amounts of data to be trained -- become more common, the differentiation factor will be which companies can train their LLMs the best.
CrowdStrike has a huge advantage over many other cybersecurity companies because of how much data the company has and continues to collect. This should be a long-term advantage as the company continues to build out and perfect its offerings. CrowdStrike says its total addressable market (TAM) will be around $76.1 billion in 2023 and should have a compound annual growth rate of 13% through 2025. If it can continue to expand at current rates, there's no reason to believe it won't tap into a large part of that growing TAM.
