Investors have changed their minds after selling technology stocks for the better part of eight months.
There has been a trend reversal after Bellwether tech companies reported gains for the most recent quarter.
While many thought it would be a time when the tech revenue bubble would burst, it hasn’t. The results were especially stronger than expected, despite concerns about spiraling inflation, rising interest rates, a protracted war in Europe and endless COVID-19-related setbacks that have put increasing pressure on global supply chains.
Of course, some discretionary and consumer tech have seen a downturn. Demand for PCs has declined and ad tech for companies not named Alphabet GOOG
and Amazon AMZN,
is delayed. However, after a large number of tech names have been reported, it’s safe to say that technology has been much more resilient than most expected.
In addition to the Fantastic 4, there is a wave of high-flyers that I believe have solid long-term prospects based on secular trends. These are the five companies:
Twilio’s shares of TWLO,
have 80% craters from an all-time high, hurt by slower growth and higher interest rates. However, Twilio has cornered the CPaaS (communication platform as a service) market and when it comes to customer engagement through messaging, Twilio and its developer ecosystem are the industry leaders. The company posted 41% sales growth last quarter and exceeded expectations, while maintaining net sales – the share of recurring revenue retained from existing customers – remained above 120%. The shift to profitability will be an inflection point for the company, but revenue growth makes up for that more when, than when.
The rule of 40 is one of ServiceNow NOW,
CEO Bill McDermott’s favorite stats to list. (It’s the principle that a software company’s combined growth rate and profit margin should exceed 40%.) And the path to $16 billion in revenue by 2026 is within the company’s grasp, despite external factors that are worrying some investors. on technology expenditure. In its recent earnings report, ServiceNow had a solid overall performance and continues to benefit from the tailwind for workflow automation and AI that will increase productivity while managing human capital investments. While the stock still trades at a high multiple, it saw a drop of more than 40% before a slight retracement followed good results and positive guidance. While McDermott’s comments about foreign exchange may have deterred investors, demand for his platform remains robust. It will continue to grow, even in a more challenging macro environment — perhaps best validated by the more than 600 open sales and marketing positions ServiceNow is trying to fill.
With data breaches being a top priority for nearly every organization, the cybersecurity market is ripe for growth. Zscaler ZS,
has consistently outperformed expectations and it looks like the stock price will accelerate along with revenue growth. Over the past four quarters, the company has routinely exceeded top and bottom-line expectations. However, the losses have increased as revenues have increased, and like other names on this list, that has almost certainly given investors concern. However, the secularism here is significant, and market growth over the next eight years is projected to be about 12% CAGR (compound annual growth rate), pushing industry-wide cybersecurity spending to more than $500 billion by 2030. Zscaler’s sales are up more than 60% in the third quarter. With the rapid shift to work from home and hybrid work, the challenges for companies to secure data have increased. This trend, plus increased hacking, has been the catalyst for “zero trust”, which requires constant validation of all users trying to access data and applications to eliminate breaches. And regardless of the broader economic situation, the need for cybersecurity is not going to change – it will become even more important.
Databases are very complex and can be a boring subject for most non-technical investors. However, the applications we depend on for business and like to use for personal use require a highly scalable, next-generation document-based database that can work efficiently with massive data sets. MongoDB MDB,
has seen continued growth in sales and earnings, surpassing estimates to turn EPS profitable in the most recent quarter. The company is aggressively hiring despite the cautious market outlook, with more than 230 open sales and marketing positions on the list. With the rapid proliferation of data and apps, the need to have developers driving innovations is essential. MongoDB is well placed with its focus on a developer data platform that increases its competitiveness and helps it compete against companies like Snowflake SNOW,
and Databricks, which is privately owned.
does something vital to businesses that most investors are probably unaware of. Like MongoDB, Confluent’s solution is highly technical, making it a greater improvement for investors to understand. However, Confluent has a purpose-built open source-based solution that allows businesses to move their data seamlessly in the cloud. That’s why it exists and why companies like Citigroup and eBay use the platform. The monetization model is similar to that of Red Hat, with the underlying community version being Kafka. With ubiquitous mobile apps and data usage, legacy ETL (extract, transform, and load) and batch processing are no longer enough. With growth of more than 50% in the most recent quarter and a better-than-expected outlook for revenue and declining losses, Confluent appears poised for a significant rebound that started in the wake of its most recent results.
Daniel Newman is the principal analyst at Futurum Research, which provides or has provided research, analysis, advice or advice to Nvidia, Intel, Qualcomm and dozens of other companies. Neither he nor his company has any equity positions in said companies. Follow him on Twitter@danielnewmanUV.