If you are looking to build wealth for your retirement, investing is the best method you can utilize to achieve this goal. By parking your money in promising growth stocks with sustainable, long-term tailwinds, you can build a comfortable nest egg for your golden years.
One of the best places to allocate some of your capital is the technology sector. Although technology stocks did poorly last year as the effects of the pandemic wore off, they have come back with a vengeance this year with the Nasdaq Composite index shooting up 41% year to date.
However, you must select stocks with attractive characteristics that can ensure your capital can grow steadily. These attributes include a strong, recognizable brand that can garner more customers, a large total addressable market, and sustainable tailwinds that can drive business growth for years or even decades.
Here are three such technology stocks that can help you grow richer by the time you retire.
Image source: Getty Images.
Adobe
Software-as-a-service company Adobe (ADBE 1.73%) hosts a cloud platform that offers various products, such as Document Cloud, Creative Cloud, and Experience Cloud. The company also offers personalized digital services and is incorporating its generative artificial intelligence (AI) tool Adobe Firefly into products such as Adobe Illustrator and Adobe Photoshop.
The company experienced steady growth in both revenue and operating income from fiscal 2020 to fiscal 2022. Total revenue increased from $12.9 billion to $17.6 billion while operating income rose from $4.2 billion to $6.1 billion. Net income, however, was distorted by a tax credit in fiscal 2020 and a higher effective tax rate for fiscal 2022.
Despite this, Adobe has generated increasing free cash flow, a testament to the strength of its business franchise. Free cash flow improved from $5.3 billion in fiscal 2020 to $7.4 billion in fiscal 2022.
NASDAQ: ADBE
Key Data Points
The software company's results for the fiscal fourth quarter of 2023 (ending Dec. 1) show that it's still growing. Total revenue rose 10.2% year over year to $19.4 billion, a new record, with subscription revenue making up 94% of the total. Operating and net income climbed 9.1% and 14.1% year over year, respectively, to $6.7 billion and $5.4 billion. Adobe also continued generating a positive free cash flow of $1.55 billion for its latest fourth quarter.
During October's Adobe MAX 2023 event, management unveiled three major new models in Adobe's generative AI toolkit with more than 100 new features to be integrated into its Creative Cloud applications. The company is also releasing the new Adobe GenStudio to power enterprise content with customized models of Firefly. The future looks promising for Adobe as it continues to innovate and deliver cutting-edge software to its customers.
Okta
Okta (OKTA 1.51%) offers an identity management cloud service to help corporations manage access privileges and login credentials. As more organizations digitalize, they will need to use Okta's services to manage the burgeoning access requirements across their various IT systems, thereby generating a long-term tailwind for Okta's business.
The company's financial numbers illustrate its steady growth over the years, with total revenue increasing from $835 million to $1.9 billion from fiscal 2021 to 2023 (ended Jan. 31). Despite incurring losses, the business generated positive free cash flow in all three fiscal years.
NASDAQ: OKTA
Key Data Points
Okta continued its growth momentum for the first nine months of fiscal 2024. Total revenue jumped 23% year over year to $1.7 billion while gross profit improved by close to 30% to $1.2 billion. Gross margin increased from 69.8% a year ago to 73.7%. Okta also generated a positive free cash flow of $322 million, a sharp reversal from the $9 million free-cash outflow in the prior year.
Total customers rose to a new high of 18,800 for the current quarter, up sharply from just 10,000 in fiscal 2021. More importantly, the number of customers with an annual contract value of more than $100,000 more than doubled from 1,950 to 4,365 over the same period. Okta also managed to maintain its dollar-based net retention rate at 115% and above for the last 11 quarters, an admirable achievement and a testament to the stickiness of its services.
The total addressable market for identity management stands at $80 billion, implying that Okta still has significant room to grow its top line in the years to come.
Snowflake
Snowflake (SNOW 0.27%) operates a data cloud service to help its customers collate data from different silos to glean useful information and gain insights. Customers can use its data cloud service to conduct analytics as the platform spans multiple clouds and geographies. Organizations with disparate sets of data will find Snowflake's platform useful in organizing the data, and as data requirements grow exponentially in the future, such requirements provide a strong tailwind for Snowflake's business.
Revenue for fiscal 2021 started at $592 million but has more than tripled in two years to $2.1 billion. Free cash flow turned positive in fiscal 2022, coming in at $56.9 million, and soared eightfold year over year for fiscal 2023 to $495.8 million.
NYSE: SNOW
Key Data Points
For the first nine months of fiscal 2024, Snowflake's revenue continued climbing, leaping 37.6% year over year to $2 billion. The good news is that free cash flow also jumped 46.5% year over year to $425.7 million, and the business is showing its ability to generate more consistent free cash flow moving forward.
Total customers increased by 23.5% year over year to 8,907 with 647 customers in the Forbes Global 2000 list. Customers contributing more than $1 million in product revenue jumped 52% year over year to 436. Snowflake estimates that its total addressable market for 2022 stood at $140 billion and that this will more than double to $290 billion by 2027, giving the company ample opportunity to grow its revenue and free cash flow.
