The cryptocurrency market warmed up again over the past year as the approvals of Bitcoin's (CRYPTO: BTC) spot ETFs (exchange-traded funds) and stabilizing interest rates brought back the bulls. But most cryptocurrencies are still extremely volatile, tough to value properly, and heavily exposed to unpredictable macro and regulatory headwinds.
Therefore, investors willing to take some risk but wanting to invest their cash in actual businesses should take a closer look at high-growth tech companies instead of cryptocurrencies. I personally believe three promising tech stocks -- Datadog (NASDAQ: DDOG), ServiceNow(NYSE: NOW), and Monday.com(NASDAQ: MNDY) -- could generate bigger gains than most cryptocurrencies over the next few years.
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1. Datadog
Datadog's cloud-based platform collects diagnostic data from a company's entire software infrastructure in real time. It then aggregates that data onto unified dashboards, which makes it easier for IT professionals to spot potential problems.
From 2019 to 2023, its revenue grew at a compound annual growth rate (CAGR) of 56%, its total number of large customers (who generate at least $100,000 in annual recurring revenue) nearly quadrupled from 858 to 3,190, its adjusted operating margin improved from negative 1.5% to positive 23%, and its annual free cash flow (FCF) grew from $0.8 million to $597.5 million. It also turned profitable on a generally accepted accounting principles (GAAP) basis for the first time in 2023.
Datadog isn't immune to the macro headwinds driving many companies to rein in their cloud spending, but analysts expect its revenue to still grow at a CAGR of 23% from 2023 to 2025 as its GAAP net income grows at a CAGR of 43%.
We should take those estimates with a grain of salt, but Datadog has clearly carved a niche in the growing cloud monitoring market -- which Mordor Intelligence believes will grow at a CAGR of nearly 20% from 2024 to 2029. Its stock might not seem cheap at 16 times this year's sales, but it still has plenty of upside potential.
2. ServiceNow
ServiceNow's cloud-based service helps companies streamline their unstructured work patterns into automated digital workflows. That process makes it easier for companies to expand efficiently, trim their operating expenses, and support remote and hybrid workers.
From 2019 to 2023, ServiceNow's revenue grew at a CAGR of 27%, its operating margin expanded from 21% to 28%, and its net income rose at a CAGR of 29%. Its number of customers with an annual contract value of over $1 million more than doubled from 892 to 1,897, while its annual FCF almost tripled from $971 million to $2.73 billion. Looking ahead, it aims to generate more than $16 billion in revenue in 2026 -- which would represent a three-year CAGR of 21% from 2023.
ServiceNow expects that growth to be driven by the digital transformations of large businesses. That secular trend is usually well insulated from macro headwinds since economic downturns drive companies to cut costs and streamline their businesses. ServiceNow's stock might seem a bit pricey at 14 times this year's sales, but its robust growth rates justify that higher valuation and could support even bigger multibagger gains.
3. Monday.com
Monday.com's cloud-based platform enables companies to develop their own work management apps to accelerate and automate custom tasks. These apps can be built from scratch or created through pre-built "recipes" for common tasks, and they can be directly integrated into a company's existing software applications.
From 2021 to 2023, Monday.com's revenue grew at a CAGR of 54%, while its number of customers generating over $50,000 in annual recurring revenue nearly tripled from 793 to 2,295. Its operating margin rose from negative 17% in 2021 to positive 8.4% in 2023 as it scaled up its business, but it's still unprofitable on a GAAP basis.
Just like ServiceNow, Monday.com benefits from the digital transformations of large businesses. Its Monday AI platform, which enables developers to weave artificial intelligence (AI) features into its apps, should also enable it to profit from the long-term expansion of the AI market. It could also challenge automation software providers like UiPath and custom AI algorithm developers like C3.ai with its customized apps.
From 2023 to 2025, analysts expect its revenue to grow at a CAGR of 27%. It's still reasonably valued at 10 times this year's sales, and it could be a balanced way to profit from the growth of the cloud, digital transformation, and AI markets.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Datadog, Monday.com, ServiceNow, and UiPath. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
