Wall Street had a pretty impressive run in 2023. The Nasdaq Composite, which includes over 3,000 securities, gained about 44% in 2023.
Investor sentiment has been quite upbeat, with the U.S. economy showing stronger-than-expected corporate earnings and third-quarter gross domestic product growth that exceeded forecasts. The increased investor confidence could further drive up the stock market, including the Nasdaq (which contains many tech and growth stocks), at least in the early months of 2024.
Against this backdrop, it makes sense for retail investors to pick up small stakes in fundamentally strong growth stocks such as SoFi Technologies (SOFI 1.56%) and CrowdStrike (CRWD +4.33%) Here's why these stocks are smart investments now.
SoFi Technologies
Diversified fintech company SoFi Technologies is best known for its online-only model of offering a range of consumer financial services, such as loans, credit cards, and brokerage accounts. Because it doesn't rely on physical branches, the company can hold down costs, while focusing more on product development and technological advancements. The company also offers platform-as-a-service technology solutions to financial and non-financial institutions, which further diversifies its revenue base.
NASDAQ: SOFI
Key Data Points
SoFi demonstrated remarkable resilience in 2023, a year marked by much higher interest rates and significant economic uncertainty. The company added $2.9 billion in deposits and ended the third quarter with total deposits of $15.7 billion. A major chunk of those deposits were high quality, as over 90% were from sticky customers, while 98% were insured. The rapid deposit growth is testimony to the trust customers have in SoFi's platform.
SoFi has succeeded in making the most of its banking charter. The company is leveraging its low-cost deposits to fuel its lending business. In the third quarter, net interest income soared by 90% year over year to $265 million. The company plans to reduce its cost of capital even more by increasingly shifting to deposit funding, which is currently over 60%, while passing on higher interest rates to borrowers. This approach should help it maintain high net interest margins in the coming quarters.
Furthermore, by positioning itself as a one-stop shop for financial needs, SoFi has attracted younger customers who value speed, convenience, and a wide selection of financial products and services. The company aims to create a lifelong relationship with these customers as their financial needs evolve, ensuring lower customer retention costs and higher customer loyalty. Doing so can help SoFi to endure short-term economic turbulence.
SoFi reported impressive financial results in the third quarter, with revenue rising 22% year over year to $531 million. The gains were driven by growth across all its major business segments -- lending, financial services, and technology platforms. The company is also on the brink of achieving its first net profit in the fourth quarter.
With a well-capitalized balance sheet, a one-stop-shop integrated financial platform, a focus on creating long-term relationships, and broad-based top-line growth, SoFi seems like a compelling pick ahead of a Nasdaq surge.
CrowdStrike
Leading endpoint security player CrowdStrike did great in 2023, reflected in part by the shares soaring 142%. Although the shares are very close to their 52-week high, there is still much to like in this artificial intelligence (AI)-powered cybersecurity stock, especially in an era marked by increasing frequency and cost of enterprise cyberattacks.
NASDAQ: CRWD
Key Data Points
CrowdStrike's Falcon platform and its various modules addresses cybersecurity needs such as endpoint security, cloud security, data protection, identity protection, threat intelligence, and observability. Since the company's platform consolidates several security offerings, enterprises increasingly prefer it to fragmented solutions from multiple vendors. This approach helps companies reduce overhead costs related to the interoperability of multiple systems as well as training costs involved for each separate system.
CrowdStrike also benefits significantly from a network effect. The company's AI-powered Threat Graph is trained on trillions of cyberthreat-related data points weekly, thereby making it capable of distinguishing effectively between normal and malicious behavior. The robust security capabilities help attract new customers, which brings in more data points and further strengthens the Falcon platform. This virtuous cycle has played a major role in fostering customer loyalty and ensuring the success of its cross-selling strategy across industries and organizations of varying sizes. The company reported that 63% of subscription customers used five or more Falcon modules in the third quarter, an improvement from 60% in the same quarter of the prior year.
CrowdStrike has reported strong financial results, with revenue and earnings surpassing analysts' estimates in the latest quarter. The company has also projected a 35% year-over-year revenue jump to $3.05 billion for fiscal 2024 (ending June 30, 2024). Hence, with CrowdStrike estimating its target addressable market to grow from $100 billion in the calendar year 2024 to $225 billion in calendar year 2028, there is still plenty of room for growth for this cybersecurity powerhouse.
