Investors have changed their minds after nearly eight months of selling tech stocks.
There has been a turnaround after leading tech companies reported earnings for the most recent quarter.
While many thought the tech revenue bubble would burst, it didn’t. Results were mainly better than expected, despite worries about runaway inflation, rising interest rates, an ongoing war in Europe and endless COVID-19-related setbacks that have put increasing pressure on global supply chains.
Sure, some discretionary and consumer tech companies have seen setbacks. PC demand has weakened, and ad tech for companies not named Alphabet GOOG,
and Amazon AMZN,
has slowed down. However, with a large number of technology names reporting, it is safe to say that the technology has been far more resilient than most anticipated.
Beyond the Fantastic 4 is a wave of high achievers who I believe have solid long-term prospects based on secular trends. Here are the five companies:
Twilio’s Shares TWLO,
are down 80% from a record high, hurt by slower growth and higher interest rates. However, Twilio has cornered the CPaaS (Communications Platform as a Service) market, and when it comes to engaging customers through messaging, Twilio and its developer ecosystem are leaders. The company posted revenue growth of 41% in its most recent quarter, beating expectations, while net revenue retention — the portion of recurring revenue retained by existing customers — stayed above 120%. The shift to profitability will be a game-changer for the company, but revenue growth makes up for that more than if.
The Rule of 40 is one of ServiceNow NOW,
CEO Bill McDermott’s favorite metrics. (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 firmly within the company’s reach, despite external factors that some investors are worried about Spending on technology worry. In its most recent earnings report, ServiceNow posted solid overall results and continues to benefit from tailwinds for workflow automation and AI that will increase productivity while managing human capital investments. Although the stock still trades at a high multiple, it fell over 40% before staging a slight retracement on good earnings and positive forecasts. While McDermott’s comments on FX may have unsettled investors, demand for his platform remains resilient. It will continue to grow even in a more challenging macro environment — perhaps best vindicated by the 600+ open sales and marketing roles ServiceNow is trying to fill.
With data breaches a top priority for almost all organizations, the cybersecurity market is ripe for growth. Zscaler ZS,
has consistently exceeded expectations and, in addition to sales growth, should also accelerate its share price. In the last four quarters, the company has regularly exceeded expectations in terms of sales and earnings. However, losses have increased as revenue has grown, and like other names on this list, this has almost certainly worried investors. However, the secular values are significant here, and the market growth over the next eight years is projected to be around 12% CAGR (compound annual growth rate), elevating industry-wide cybersecurity spending to more than $500 billion by 2030. Zscaler’s revenue increased over 60% in the third quarter. With the rapid shift to remote work and hybrid work, enterprise data security challenges have become more important. This trend, along with increased hacking, was the catalyst for “zero trust,” which requires constant vetting of all users attempting to access data and applications in order to remediate breaches. And regardless of the general economic situation, the need for cybersecurity will not change – if anything, it will become more critical.
Databases are highly complex and can be a boring topic for most non-technical investors. However, the applications we rely on for business and for personal use require a highly scalable, next-generation document-based database that can work efficiently with massive datasets. MongoDB MDB,
has posted steady revenue and earnings growth for the most recent quarter, beating estimates to make earnings per share profitable. The company is aggressively hiring despite the cautious market outlook, with over 230 open sales and marketing positions listed. With the rapid spread of data and apps, it’s imperative that developers drive innovation. MongoDB is well positioned as it focuses on a developer data platform that increases its competitiveness and helps it hold its own against the likes of Snowflake SNOW.
and Databricks, which is privately held.
is doing something important for companies that most investors are probably unaware of. Like MongoDB, Confluent’s solution is highly technical, which makes it much easier for investors to understand. However, Confluent has a purpose-built, open-source-based solution that enables businesses to more seamlessly move their data to the cloud, why it exists, and why the likes of Citigroup and eBay use their platform. The monetization model is similar to Red Hat, with the underlying community version being Kafka. With ubiquitous mobile applications and data usage, legacy ETL (extract, transform, and load) and batch processing are no longer appropriate. With over 50% growth in the most recent quarter and better-than-expected earnings and loss guidance, Confluent appears primed for a significant rebound that has already begun following recent results.
Daniel Newman is the lead analyst atfuture researchthat offers or has provided research, analysis, advice, or advice to Nvidia, Intel, Qualcomm, and dozens of other companies. Neither he nor his company hold shares in the companies mentioned. Follow him on Twitter@danielnewmanUV.
https://www.marketwatch.com/story/step-aside-faanmgs-this-newer-crop-of-tech-companies-are-the-ones-to-watch-for-the-next-decade-11659716976?rss=1&siteid=rss Opinion: Step aside, FAANMGs. This new generation of technology companies should be watched over the next decade.