The Nasdaq-100 Technology Sector index is up 37.4% so far in 2023, putting last year's forgettable performance in the rear window. The jump can be attributed, in part, to the disappearance or significant reduction of multiple headwinds that hit tech stocks in 2022.
Cooling inflation, a resilient economy, and the expectation of interest rate cuts by the Federal Reserve in 2024 have been tailwinds for tech stocks in 2023. At the same time, the enthusiasm for recent advances in artificial intelligence (AI) gave investors another reason to once again pursue these stocks, hoping to take advantage of technology's ongoing ability to revolutionize multiple industries.
The broader rally in tech stocks rubbed off positively on shares of ASML (ASML 2.04%) and CrowdStrike (CRWD 2.03%) as well. These companies are on track to take advantage of massive end-market opportunities that should allow them to sustain high levels of growth for a long time to come.
Let's look at why investors would do well to buy these two stocks before they fly higher.
1. ASML
ASML underperformed the tech sector so far in 2023 with gains of 21.6%. But this is an opportunity in disguise for investors looking to buy a fast-growing company at a reasonable valuation.
The Dutch semiconductor company's stock currently trades at 32 times trailing earnings, which is a discount to its five-year average price-to-earnings ratio of 41. Buying ASML at this valuation looks like a no-brainer, given its terrific growth.
ASML released its second-quarter results last month, showing that revenue shot up 28% year over year to 6.9 billion euros ($7.5 billion), while earnings per share jumped 39% to 4.93 euros ($5.36). Management increased its 2023 guidance and now expects full-year revenue to increase by 30%, compared to its prior projection of a 25% jump.
These numbers indicate the terrific demand for ASML's lithography machines that help foundries and chipmakers manufacture semiconductors. More importantly, the company is expected to sustain its outstanding growth beyond 2023 because ASML is the only manufacturer of extreme ultraviolet (EUV) lithography machines.
These machines manufacture advanced chips using small process nodes on which transistors are packed together closely, enabling electric signals to travel faster. As a result, chips made with EUV technology are capable of delivering high computational power. They are also more power-efficient as chips made on a smaller process node generate less heat because the electrons travel a smaller distance.
These advanced chips are considered ideal for tackling complex workloads, such as in data centers. They play a central role in boosting AI adoption because they are being deployed for training complex AI models. ASML sits on a massive backlog worth $41.3 billion, which should allow it to easily hit its 2023 revenue target of $29.9 billion.
Also, the EUV lithography market expects to clock annual growth of almost 17% through 2031, according to Straits Research. The annual size of the market could hit $40 billion at the end of the forecast period as compared to just under $10 billion last year. ASML has a secular growth opportunity, which explains why its top line is expected to grow.
ASML revenue estimates; data by YCharts.
Investors looking for a top semiconductor stock that could sustain high levels of growth for a long time can consider buying ASML before it becomes expensive.
2. CrowdStrike
Share prices of CrowdStrike jumped 47% so far in 2023, which explains why the stock is now trading at a rich 14.9 times sales. But investors looking for a stock that can take advantage of fast-growing niches such as cloud security and AI would do well to buy this cybersecurity specialist right now before it rockets higher.
CrowdStrike already posted a 42% year-over-year increase in revenue in the first quarter of fiscal 2024 (for the three months ended April 30) to $693 million. The company expects to finish the fiscal year with revenue of just over $3 billion, which would be a 34% increase from fiscal 2023.
CrowdStrike outperformed Wall Street's earnings expectations handsomely in the past four quarters, so it won't be surprising to see it exceed its guidance, especially considering the massive end-market opportunity it is sitting on. Management estimates the company's total addressable market (TAM) to be worth $76 billion this year.
That TAM could jump to $98 billion in 2025 based on CrowdStrike's current portfolio of services. And the company estimates that its product pipeline and the growing opportunity in the cloud security space could send its TAM to $158 billion in 2026. All this explains why top-line growth should remain strong for the next couple of fiscal years as well.
CRWD revenue estimates data by YCharts.
One of those new products likely to help sustain healthy long-term growth is Charlotte AI, a generative AI-powered security analyst that the company says will enable organizations to reduce costs and achieve better results by improving the capabilities of their employees.
Entering the AI-enabled cybersecurity niche is a smart move; this market is expected to clock 22% annual growth through 2028 and generate over $60 billion in annual revenue.
In all, CrowdStrike Holdings seems to be in a solid position to keep growing at a fast pace for a long time to come, giving investors a good reason to buy the stock right now.
