of Nasdaq Composite Index (NASDAQINDEX: ^IXIC) The Nasdaq entered a new bull market some 17 months ago in December 2022 and has risen 68% since then, but history suggests there’s even more upside to come for the tech-heavy index. Average return of 215% The company has taken an average of 40 months to turn a profit during bull markets since 1990.
In other words, if the current bull market matches up exactly with its historical average, the index would rise an additional 147% over the next two years.To be fair, that would mean a somewhat unrealistic return of 57% per year.But patient investors still have reason to believe the Nasdaq is headed higher.
The index has grown 16.1% annually over the past decade. S&P 500has an annualized return of 12.9% and is expected to perform similarly in the coming years. Investors should consider buying small positions to ride this upward momentum. alphabet (Nasdaq: GOOG) (Nasdaq: GOOGL) and Crowdstrike (Nasdaq: CRWD)Here’s why.
1. Alphabet
Alphabet has a digital advertising and Cloud ComputingIts subsidiary, Google, is the world’s largest advertising technology company due to its ability to engage with consumers and collect data. Specifically, six products, including Google Search, Chrome, and YouTube, which reach 2 billion users monthly, allow the company to efficiently collect data that helps advertisers build more successful campaigns.
Similarly, Google Cloud Platform (GCP) is the third largest provider of cloud infrastructure and platform services. Amazon Web Services and Microsoft With a large lead over Azure, the company has grown its market share by a percentage point over the past year, a trend that is likely to continue as businesses invest in artificial intelligence (AI). To be sure, Microsoft has historically outperformed its peers when it comes to generative AI, but Google has been a long-time leader in AI research and its technical capabilities should not be underestimated.
In the first quarter, Alphabet reported its fourth consecutive quarter of accelerating revenue and profit growth, as shown in the chart below. Revenue increased 15% to $80.5 billion, driven by particularly strong growth in Google Cloud, which consists of cloud computing services and office productivity software, while GAAP net income increased 57% to $23.7 billion, driven by a continued focus on cost control.
Looking forward, Wall Street analysts expect Alphabet to grow its earnings per share at 17% annually over the next three to five years. Based on this forecast, the current valuation of 26.8 times earnings seems reasonable, although it is more expensive than the three-year average of 24.6 times earnings. Given this valuation, I believe Alphabet is well positioned to outperform the Nasdaq Composite Index over the next five years, as it has over the past five years.
2. Crowdstrike
CrowdStrike offers more than 20 cybersecurity products through a single platform. While the company is a market leader in endpoint security software and managed detection and response (MDR) services, its platform serves multiple end markets and is growing in several areas, including cloud security, identity protection, and security information and event management (SIEM).
CEO George Kurtz attributes its success to superior artificial intelligence capabilities and proprietary engineering that make the company’s platform “the easiest and fastest to deploy cybersecurity technology.” Additionally, companies are increasingly looking to reduce costs by consolidating onto a single platform, especially one with a reputation for industry-leading threat detection, like CrowdStrike’s Falcon platform.
CrowdStrike reported strong fourth-quarter results, with revenue up 33% to $845 million and non-GAAP net income up 102% to $0.95 per diluted share. In a press release, Kurtz said, “Customers love our single-platform approach.” He also noted that companies are standardizing on Falcon for cloud security, identity protection, and LogScale next-gen SIEM solutions.
Management also noted strong momentum for new products such as IT automation software (Falcon for IT) and a generative AI assistant (Charlotte AI). Falcon for IT is important because it expands CrowdStrike’s addressable market into the security-adjacent realm of observability by addressing use cases such as compliance and performance monitoring. Similarly, Charlotte AI allows the company to capitalize on the demand for automation.
Looking ahead, CrowdStrike has several tailwinds in its favor. First, cyberattacks are becoming more sophisticated. Second, many businesses still purchase 60+ point products, and half of them still use outdated antivirus that fails to detect 39% of malicious software. As a result, deploying effective cybersecurity solutions, especially platforms that integrate products, is becoming a priority for IT budgets.
With this in mind, Wall Street expects CrowdStrike to grow its revenue at 29% annually over the next five years. At this consensus estimate, its current valuation of 28 times sales looks reasonable. CrowdStrike has more than doubled its Nasdaq Composite revenue over the past three years, and we believe it can outperform its current valuation over the next five years.
Should you invest $1,000 in Alphabet right now?
Before you buy Alphabet stock, consider the following:
of Motley Fool Stock Advisor The analyst team Top 10 Stocks Here are the stocks investors should buy right now… Alphabet isn’t one of them. These 10 stocks have the potential to generate huge profits over the next few years.
Things to consider NVIDIA This list was created on April 15, 2005…If you invested $1,000 at the time of recommendation, That comes to $652,342.!*
Stock Advisor With portfolio construction guidance, regular updates from our analysts, and two new stock picks every month, we provide investors with an easy-to-follow blueprint for success. Stock Advisor The service is More than 4 times First S&P 500 recovery since 2002*.
*Stock Advisor returns as of May 13, 2024
Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, also serves on The Motley Fool’s board of directors. Trevor Genevin The Motley Fool has positions in Amazon and CrowdStrike. The Motley Fool has positions in and recommends Alphabet, Amazon, CrowdStrike, and Microsoft. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool recommends: Disclosure Policy.
History Says Nasdaq Could Soar: 2 Top Growth Stocks to Buy Now for a Bull Market Originally published on The Motley Fool
