Tech stocks have had a good run lately. Over the last 12 months, the Nasdaq Composite, which is comprised of predominantly tech stocks, is up 39%. While the index has yet to return to its 2021 high, it's not far off.
It's never a surprise that this sector performs well. Technology is at the center of everything we do, and some of the largest companies in the world reside in this sector.
Because of the undeniable tailwinds behind many of these companies, the tech sector is a great place to look for new stock ideas. Identifying and holding the right tech stocks for the long term can be a recipe for success. Here are three worth buying today that will likely remain worthy of investor dollars for years to come.
1. Fortinet
Cybersecurity is not a new industry. Businesses and individuals have been protecting against data breaches, hackers, and computer viruses for decades. However, the amount of data, devices, servers, and cloud storage has grown exponentially over the last several years, making the need to protect it all even more important.
Fortinet (FTNT 0.23%) has a long track record of leadership in the cybersecurity space and continues to grow and expand its reach. It's been a public company since 2009 and has been profitable and free cash flow generative every year since its initial public offering (IPO). Over the same time frame, Fortinet has averaged quarterly year-over-year revenue growth of 17%, demonstrating its ability to grow while generating a profit.
As Fortinet grows, so does the threat landscape. The total cybersecurity market opportunity is currently $125 billion and is expected to grow to almost $200 billion by 2027. This secular trend, combined with Fortinet's track record of revenue growth and sustained profitability, makes it an attractive investment for the long run.
2. DocuSign
Few companies felt the effects of the pandemic-induced stock market roller coaster more than DocuSign (DOCU -0.26%). Over a few years, DocuSign's stock took a round trip from $37 in 2019 to a high of $310 in 2021 and back down to a low of $39 in 2022. Fortunately, recent results have shown some positive signs.
For most of its time as a public company, DocuSign has been unprofitable but has demonstrated impressive revenue growth. Over the last year, those trends have reversed, with revenue growth slowing but profitability improving. The company turned a profit for the first time in its 2023 Q4, which ended in January 2023.
The big earnings improvement showed up in the most recently reported quarter, Q3 2024 (ending in October 2023), when net income jumped to $39 million. This was a vast improvement over the $30 million net loss in the year-ago quarter.
DocuSign has also seen an acceleration in its cash generation. In the third quarter of its fiscal 2023, DocuSign generated $36 million in free cash flow. One year later, that number was $240 million.
As the leader in the e-signature market, DocuSign is positioned for future success. The ability to generate positive earnings even as revenue growth is slowing is a positive sign for potential and current shareholders.
3. Confluent
As our world has become more digitized, the rate at which we create data has grown exponentially. To businesses, data is vital. Being able to respond to data in real time, as opposed to after the fact, gives businesses an advantage and makes them more responsive to the needs of their customers. Confluent (CFLT 2.98%) is at the center of the push to help businesses access and use their data in real time.
Considering the exponential growth of data collection, the market in which Confluent operates is massive. The company estimates its total addressable market to be approximately $60 billion and expects it to grow to $100 billion by 2025.
Confluent has been doing a great job of taking its share of this market opportunity. From 2018 to 2022, the company grew its annual revenue at a compound annual growth rate (CAGR) of more than 72%. The company is also geographically diversified, with 40% of its revenue coming from outside the United States.
For a company like Confluent, customer growth is key. In Q3 of 2023, Confluent reported total customer growth of 16%, with its larger customers growing even more rapidly. Customers with $100,000 or more in annual recurring revenue increased by 25%, and customers with $1 million or more in annual recurring revenue grew by 38%.
