The Nasdaq-100 technology index plunged 33% in 2022. In uncertain times, investors often turn to historical data to help them forecast the market's next move. The Nasdaq-100 has only fallen in consecutive years on one occasion since it was established in 1986 -- during the dot-com tech crash from 2000 to 2002 -- so the odds were in favor of a rebound in 2023.
True to form, the index has soared 55% this year. And while history is no guarantee, rebound years like 2023 historically have always been followed by a second positive year. The Nasdaq-100 delivered an average gain of 21.5% in the four occurrences since 1986, so that's the return investors might expect in 2024 based on history alone.
Here's why Confluent (CFLT 2.98%) and Elastic N.V. (ESTC 2.52%) could be two top-performing stocks if history repeats itself.
1. Confluent is mission critical for thousands of companies
Demand for data streaming is growing rapidly, so it's a technology that all investors should become familiar. It empowers businesses to harness all of the valuable data they generate, and make adjustments in real time to boost efficiency and deliver the best possible experience for their customers. Confluent is the leader in the data streaming industry.
So how does it work? Businesses rent computing power from centralized data centers that are managed by tech giants like Amazon and Microsoft -- this is called cloud computing. Websites, sales channels, and most critical applications are now hosted in the cloud, which means mountains of data is being generated every day in real time.
In the past, businesses would store that data and come back to analyze it at a later date. But data streaming allows them to ingest, process, and analyze it instantly, which creates all sorts of opportunities. When an investor purchases a stock using an online brokerage platform, for example, the live pricing information is being fed to them through data streaming technology.
Similarly, data streaming allows online sportsbooks to calculate odds, feed them to a potential bettor, and accept wagers on live games. Dick's Sporting Goods also uses Confluent for inventory management. Instead of updating data once per day, data streaming allows customers to see real-time inventory information so they know which Dick's stores have the products they are looking for.
Confluent now serves 4,910 businesses, and that number is growing. In the recent 2023 third quarter (ended Sept. 30), the company also had a high net revenue retention rate of 130%, which means existing customers were spending 30% more money on the platform than they were a year ago.
New customer acquisitions combined with existing customers spending more money means Confluent is on track to deliver a record $769 million in revenue for 2023. But that's a mere fraction of what management says is a $60 billion opportunity today, so the company has a long runway for growth.
Confluent stock is trading 74% below its all-time high, which was set during the tech frenzy of 2021. Investors got a little carried away with its valuation back then, but the company is now in the best position it has ever been. At least one Wall Street analyst thinks Confluent's revenue could top $1 billion in 2024, so its beaten-down stock price spells opportunity for investors today.
2. Elastic N.V. is elevating its flagship product with artificial intelligence
Elastic helps organizations harness the power of their information in another way, with the help of artificial intelligence (AI). As I mentioned earlier, modern companies are generating mountains of data, and it can be challenging to access it once it's stored within their networks. Elasticsearch solves that problem by creating a comprehensive search experience for employees.
For example, let's say an employee is looking for a piece of information relating to their company's workplace policies. Instead of manually sifting through dozens of files, they can simply query Elasticsearch, which will retrieve the information instantly. But it isn't just for members of staff -- Elasticsearch also works with a company's websites and sales channels, so customers can quickly find product information.
But AI is elevating Elasticsearch's abilities. The Elasticsearch relevance engine (ESRE) empowers developers to build AI into their organization's search experience, which reduces the need for specificity and transforms its capabilities.
Here's a case in point: If a customer is completing a DIY construction project at home, they might use an internet search engine to seek instructions and then visit the website of their preferred hardware store to find the products they need. But if that hardware website runs on ESRE, the customer can simply explain what they want to build, and it will display every necessary product and tool without having to visit an external search engine.
According to the International Data Corporation, we will be creating 480 exabytes' worth of data every day from 2025 onward (one exabyte is equivalent to 1 million terabytes). Elastic serves 20,700 businesses right now, but based on that estimate, the number of organizations requiring tools like Elasticsearch to manage their data will likely explode in the coming years.
Elastic stock more than doubled this year as investors raced to buy a stake in AI companies, gaining 45% in December alone on the back of better-than-expected financial results for the fiscal 2024 second quarter (ended Oct. 31). The company's $311 million in revenue topped its forecast of $304 million, and its $0.37 in non-GAAP earnings per share was a whopping 54% higher than the $0.24 it expected.
Elastic is now on track to deliver a record-high $1.25 billion in annual revenue for fiscal 2024, and at its current stock price, it's cheaper than many other popular names in the AI space on a price-to-sales basis. That spells opportunity for investors.
