Growth stocks can be one of the best tools to build wealth over the long term. These are companies experiencing steady growth in their operations, usually because they are going after a huge opportunity.
But even the best growth stocks can fall with the broader market. What makes these stocks great is that they recover as long as the fundamental drivers of the company's growth remain intact.
Here are two discounted growth stocks that are worth investing in in anticipation of their eventual recovery.
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1. The Trade Desk
Shares of The Trade Desk (TTD -1.83%) are trading down about 45% from highs reached in late 2024. The sell-off appears to be more related to the stock's high valuation heading into 2025 than weak business performance. The Trade Desk is a leading digital ad-buying platform that continued to see healthy demand in the first quarter.
Most of the $1 trillion advertising market is centered around the digital ad market, where big tech giants like Alphabet's Google and Meta Platforms capture a large share of the pie. However, most people spend time browsing the internet away from Google Search or social media. Capturing more ad spending that is moving to the open internet is a tremendous opportunity for The Trade Desk.
The Trade Desk provides all the data and transparency brands need to buy and measure their ad performance. The company generates revenue from charging fees on the total ad spending made on its platform. In the first quarter, revenue grew 25% year over year to $616 million, and it has been reporting high growth rates like this for many years.
The company should continue to report strong growth over the next several years, as it brings more tools to the platform that make digital ad-buying more cost-effective for brands. More brands are looking to do more with less amid the uncertainty in the economy, and this could benefit The Trade Desk in the near term and help capture a greater piece of its addressable market.
The main risk facing the company in 2025 is the potential of a slowing ad market due to weakness in the economy, but the stock is still a solid buy ahead of the company's long-term opportunity. The Trade Desk is a very profitable business, with earnings per share growing faster than revenue. Analysts expect earnings to grow at an annualized rate of 31% in the coming years, which should be enough to support the stock's valuation and deliver market-beating returns for investors.
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2. Snowflake
Snowflake (SNOW -0.50%) is a leading cloud-based data management platform that has reported consistent high growth in recent years. Companies choose Snowflake because it works across multiple cloud service providers, and it allows companies to share and analyze data to gain deeper insights and speed up innovation.
The stock fell over 50% from its previous peak due to slowing growth on top of a rich valuation, but it could be on the verge of a comeback. Snowflake continues to report 20%-plus annual revenue growth, and investors are starting to wake up to the value in the shares. The stock moved sharply higher following a solid first-quarter earnings report, which showed product revenue increasing by 26% over the year-ago quarter.
An important value proposition for companies choosing Snowflake is simplicity and cost savings. Management has seen companies save over 50% after migrating their data from other platforms to Snowflake. Customers generally find Snowflake easier to use and more cost-effective than competing platforms. For example, a global marketing agency was able to reduce costs by 30% by streamlining its data architecture and minimizing its reliance on third-party tools.
As companies adopt artificial intelligence (AI) as part of their operating strategy, it creates more demand for Snowflake since these companies need access to quality data to get the most out of AI. Leading companies are using Snowflake's Cortex AI to modernize employee workflows and deliver personalized services for their customers. Nearly half of Snowflake's 11,000 customers are using its AI and machine learning tools on a weekly basis.
Barring a severe downturn in spending across the cloud market, Snowflake's consistent growth could push the stock higher over the next few years. Analysts expect Snowflake's earnings to grow at an annualized rate of 36%, which should support market-beating returns for investors.
