The benchmark S&P 500 index is up 10% so far in 2024, and it entered April at an all-time high. But even with some S&P 500 stocks trading at new highs, there are still some opportunities for investors looking to buy growth stocks.
In fact, there are plenty of individual stocks still sitting below their all-time highs set during the tech frenzy in 2021, because they saw sharp reversals in 2022. SentinelOne (S 3.61%) and DigitalOcean (DOCN 4.30%) are two great examples.
SentinelOne is a cybersecurity powerhouse with artificial intelligence (AI) at its core, and DigitalOcean operates a cloud computing platform designed for small and mid-size businesses. Their stock prices are down roughly 69% and 70%, respectively, from their best-ever levels. Here's why the shares look attractive for investors with $65 available to invest.
NYSE: S
Key Data Points
1. SentinelOne
Businesses operate online more than ever thanks to cheap digital solutions offered by cloud computing platforms. While it empowers them to reach a global customer base and streamline their day-to-day tasks, it makes them an easy target for cybercriminals, who launch attacks around the clock.
Human cybersecurity managers simply can't keep up with the sheer volume of threats their organizations face. Alert fatigue is one of the industry's most serious problems. Palo Alto Networks estimates that 23% of security incidents are left uninvestigated because of it.
SentinelOne offers a portfolio of artificial intelligence (AI)-powered cybersecurity products to help solve that challenge. Its Singularity platform features endpoint, identity, and cloud solutions that proactively hunt down and neutralize threats at machine speed. SentinelOne's Storyline technology then pieces incidents together to autonomously create a summary for cybersecurity managers, significantly cutting down the amount of time they have to spend on manual investigations.
Purple AI is another tool SentinelOne recently launched to reduce alert fatigue. It's a virtual assistant powered by generative AI, and it's capable of explaining an organization's risk posture, recommending solutions, and hunting down specific threats, all with a simple prompt.
SentinelOne generated a record-high $621 million in revenue during fiscal 2024 (ended Jan. 31), which equaled a year-over-year increase of 47%. It was also comfortably above management's forecast.
SentinelOne is still losing money on the bottom line because it's investing heavily in growth. However, based on the company's fiscal 2024 revenue and its current market cap of $7.2 billion, its stock trades at a price-to-sales (P/S) ratio of just 11.6.
That makes SentinelOne stock significantly cheaper than CrowdStrike -- one of its main competitors in AI-based cybersecurity -- which sports a P/S ratio of 25.4. CrowdStrike's business is at a more mature stage and it generates 5 times more revenue, but that's a substantial valuation gap considering how fast SentinelOne is growing.
As a result, SentinelOne stock might be a great buy at the current price.
NYSE: DOCN
Key Data Points
2. DigitalOcean
The cloud computing industry is dominated by trillion-dollar tech giants like Amazon, Microsoft, and Alphabet. However, while those market leaders are busy chasing the largest contracts, DigitalOcean is building an incredible platform to serve small and mid-size businesses (SMBs).
It focuses on what start-ups and SMBs actually need, including cheap and transparent pricing, highly personalized service, and thousands of items of educational material to help them get the most from their cloud experience. Those features are critical because DigitalOcean's typical client doesn't have the budget for an in-house technical team.
DigitalOcean offers customers a range of cloud solutions, from simple data storage and website hosting, to complex tools for software development and video streaming. But thanks to its $111 million acquisition of Paperspace last year, it also provides an expanding suite of AI solutions that might otherwise be reserved for much larger enterprises using cloud providers like Amazon or Microsoft.
Paperspace operates specialized data centers designed to process AI workloads. They feature the industry's leading chips, including the H100 GPU from Nvidia, which is the most popular among developers to train AI models quickly. Paperspace's simple business model allows it to charge prices up to 70% cheaper than cloud giants like Microsoft, which have bloated cost structures.
Paperspace already has 500,000 customers, adding to DigitalOcean's 644,000. The two companies are a perfect match as they try to level the technological playing field for SMBs.
DigitalOcean generated $693 million in total revenue in 2023, but that's a drop in the bucket compared to its opportunity in the cloud industry, which management believes will be worth $114 billion this year. The addition of AI services could send that addressable market into the trillions of dollars over the long term.
DigitalOcean stock was heavily overvalued during the 2021 tech frenzy, hence the 70% correction since then. But considering the company is now worth just $3.5 billion as of this writing, it might be a great time to buy the shares with the intention of holding on for the years ahead.
