The Nasdaq Composite endured a brutal 2022, plummeting 33% as recessionary fears gripped Wall Street. This marked its worst annual performance since the Great Recession, but history suggests a silver lining might be just around the corner.
Historically, the Nasdaq tends to rebound sharply in the 24 months following an annual decline. Specifically, after a one-year drop of at least 10%, the index has returned a median of 52% over the next two years. While past performance isn’t a guarantee of future results, this trend hints at potential upside for 2024.
However, it’s crucial to remember that 2022’s downturn stemmed from the unprecedented global pandemic, making historical comparisons less than perfect. Nonetheless, the Nasdaq has averaged nearly 15% annual returns over the past decade, offering hope for patient investors.
With this backdrop in mind, three Nasdaq stocks emerge as compelling choices for growth-oriented investors: Datadog (NASDAQ: DDOG), Intuit (NASDAQ: INTU), and Shopify (NYSE: SHOP). All three boast competitive strengths, promising growth opportunities, and reasonable valuations.
1. Datadog: Leader in IT Observability and Cybersecurity
Datadog reigns supreme in the IT observability and cybersecurity space. Its comprehensive platform, featuring over two dozen modules, analyzes machine data across a company’s tech stack, pinpointing performance issues and security threats. This data also fuels Datadog’s AI engine, automating workflows for faster incident resolution.
Recognition abounds for Datadog’s leadership in various observability software niches, including application performance monitoring and AI for IT operations. Additionally, it holds a strong presence in data center server monitoring, log monitoring, and cloud infrastructure monitoring.
Continuous innovation and a diverse product portfolio are major drivers behind Datadog’s success. The company consistently releases new modules and features, while its broad software suite allows businesses to ditch point solutions for a unified platform. This streamlined approach improves operational efficiency.
Datadog swiftly capitalized on the generative AI boom, launching the LLM Observability module to monitor performance of these powerful language models. Notably, analyst Alex Zukin of Wolfe Research believes Datadog could become “the fastest growing software company” as generative AI takes off.
Datadog’s recent financial performance reflects its robust position. Q3 2023 saw revenue skyrocket 25% year-over-year to $548 million, while non-GAAP net income soared 96% to $158 million. Analysts anticipate similar growth trajectories in the years ahead.
With only a fraction of its $45 billion addressable market captured, Datadog is poised for continued expansion. Cloud migration and digital transformation trends will only heighten the demand for performance monitoring and security software.
Morningstar analysts project 31% annual revenue growth for Datadog over the next five years. Considering its current valuation of 18.3 times sales (compared to a three-year average of 31.2 times sales), Datadog presents a favorable entry point for tech-savvy investors.
2. Intuit: Deepening Relationships with Small Businesses and Consumers
Intuit dominates the financial software and services landscape for small businesses, self-employed individuals, and consumers. Its TurboTax tax preparation software boasts a staggering 73% market share, while QuickBooks reigns supreme in accounting software with an 80% share. Intuit also owns Credit Karma, a data-driven platform connecting consumers with credit cards, loans, and insurance products.
Intuit aims to solidify its foothold with small businesses by expanding into adjacent areas like payment processing, payroll, and marketing. QuickBooks Live offers access to bookkeeping professionals, while TurboTax Live connects users with tax professionals. These services cater to both those seeking expert advice and those preferring outsourced accounting and tax preparation.
Intuit’s Q1 2024 (ended Oct. 31, 2023) financials paint a reasonably positive picture. Revenue climbed 15% year-over-year to $3 billion, with non-GAAP net income jumping 45% to $960 million. Management, however, anticipates a moderation in momentum in the coming quarters, with full-year guidance suggesting 11.5% revenue growth and 13% non-GAAP EPS growth. Investors should prepare for a similar trajectory as Intuit executes its “AI-driven expert platform” strategy.
Intuit recently unveiled its generative AI assistant, Intuit Assist, which delivers predictive insights and automates workflows across TurboTax, QuickBooks, and Credit Karma. Intuit Assist promises to expedite tax preparation by generating checklists, identifying deductions, and connecting users with tax professionals when needed. This not only enhances the user experience but also potentially drives adoption of Turbo.
3. Shopify: E-Commerce Giant
Despite 2022’s e-commerce headwinds, Shopify boasts a remarkable decade-long growth trajectory. With the industry expected to bounce back from $3 trillion in 2023 to $5 trillion by 2028, Shopify, the leading provider of SaaS tools for online merchants, is poised to benefit. Its embrace of generative AI through Shopify Magic further enhances its offerings and growth potential. As e-commerce sales climb, Shopify’s estimated 1.7 million global merchants stand to thrive, making it a compelling buy.
Remember, thorough research and risk management are crucial before any investment. While these three Nasdaq stocks present promising opportunities, consider your own financial goals and risk tolerance before making any decisions.
