The S&P stock market index dates back to 1926 when it was composed of just 90 companies. It became the S&P 500 in 1957 when it expanded to include 500 companies, and since then, it has delivered a positive annual return 87% of the time.
While losing years are rare, consecutive losing years are even rarer. The S&P 500 has only delivered back-to-back losses on two occasions: during the crippling oil shortage in 1973 and 1974 and during the dot-com tech bust from 2000 to 2002.
Therefore, when the index fell 18% last year, the odds of a bounce-back in 2023 were extremely high. True to form, the S&P 500 is up an impressive 21.5% this year so far.
Image source: Getty Images.
Success in 2023 bodes very well for 2024
The sun is setting on 2023, so investors are probably wondering what the new year will bring. I have some great news: Bounce-back years like 2023 have always been followed by another positive year. Based on data from 11 instances since 1957, years like 2024 have delivered an average return of 15.5%!
Therefore, it's never too late for investors to enter the market, especially if they stay the course for the long term. With that in mind, here's why Confluent (CFLT 0.07%) is one of the best stocks to own as the market heads higher.
Confluent is leading the data-streaming revolution
Data streaming is a game-changing technology transforming the way businesses serve customers and manage their operations. So, what is it?
By now, you are probably familiar with cloud computing. It allows businesses to operate online by renting computing power from enormous, centralized data centers managed by tech giants like Amazon and Microsoft. This practice produces mountains of data. Each time a business performs any action online, whether they are managing inventory or selling products to customers, a useful new data point is born.
Years ago, that data might have been stored for analysis at a later date. But the flow of data is now constant thanks to the cloud, almost like a stream (pun intended). Data streaming is the practice of ingesting, processing, and analyzing that data instantly, and it's useful in a growing number of ways.
If you're about to buy Confluent stock, data streaming allows your broker to ingest price data from the exchange and feed it to your online investing platform. If you're placing a live, in-game bet on a sporting event, the technology allows the bookmaker to adjust odds, feed prices to your smartphone application, and accept bets within seconds.
Similarly, large retailers like Walmart use data streaming to feed customers live inventory information by connecting every physical and online sales channel. Each time a product is sold in any location, inventory levels are instantly updated across the entire ecosystem so shelves can be replenished before they run bare.
By 2025, the International Data Corp. projects that 90% of the world's 1,000 largest companies will use data streaming, so it's critical that investors understand it. Confluent is currently the leading player in the space.
NASDAQ: CFLT
Key Data Points
Confluent is generating robust growth
As of the recent third quarter of 2023 (ended Sept. 30), Confluent was serving a record-high 4,910 business customers. But here's the kicker: Its top-spending customer cohorts were growing the fastest, which suggests data streaming is becoming most critical in larger organizations:
|
Confluent Customer Cohort |
No. of Customers |
Growth (YoY) |
|---|---|---|
|
Total customers |
4,910 |
16% |
|
Customers spending at least $100,000 per year |
1,185 |
25% |
|
Customers spending at least $1 million per year |
155 |
38% |
Data source: Confluent. YoY = Year over Year.
It's great that Confluent is quickly acquiring new customers, but it gets better. The company's net revenue retention rate of 130% suggests existing customers also ramped up their spending by 30% in Q3 compared to a year ago.
The above results culminated in $200 million of revenue during Q3, representing 32% growth compared to Q3 2022. That growth rate has gradually slowed this year as Confluent grapples with challenging macroeconomic conditions that are driving a slowdown in spending among businesses. Everything from higher interest rates and global geopolitical conflicts are weighing on Confluent's growth, but those issues tend to resolve over the medium to long term.
Why Confluent stock is a buy now
First, it's important to acknowledge that Confluent's stock price is down 74% from its all-time high, which was set during the tech frenzy of 2021. Considering that its revenue continues to grow, the stock now trades near the cheapest price-to-sales valuation since it came public two years ago.
That spells opportunity for investors. With 2023 wrapping up this month, Confluent is on track to deliver $769 million in full-year revenue, but that's a mere fraction of what the company says is a $60 billion total addressable market in data streaming today.
If the broader market continues to march higher in 2024 (as history suggests), improved investor sentiment could send Confluent stock soaring alongside it, especially considering its attractive fundamental story.
