This has been an unforgettable year for Wall Street that’ll undoubtedly be discussed for decades to come. The unprecedented coronavirus disease 2019 (COVID-19) pandemic initially sent the broad-based S&P 500 lower by 34% in just 33 calendar days. For context, previous corrections where the benchmark S&P 500 lost at least 30% of its value took an average of 11 months to hit that mark. The COVID-19 bear market did so in less than five weeks.
But just as amazing is the rally from the March 23 bear market low. It took less than five months for the widely followed S&P 500 to ascend to new highs. That, too, is the quickest move off of a bear market low in history.
Tech stocks could outperform for years to come
Though this volatility has been unnerving at times, one sector that’s been relatively immune, at least over the past five months, is technology. Tech stocks have been on fire, with the Technology Select Sector SPDR ETF gaining over 34%, year-to-date, compared to a 7.9% increase for the benchmark S&P 500.
Why the outperformance? To begin with, the COVID-19 pandemic has exacerbated a number of already fast-growing tech trends. The lack of a traditional office environment at the moment has spurred a number of work-from-home trends, including anything having to do with cloud infrastructure and software, virtual meetings, and cybersecurity.
Furthermore, the Federal Reserve’s recent pledge to keep lending rates at or near historic lows for the next couple of years is an open invitation for high-growth tech stocks to borrow cheaply and expand their operations. In other words, there just about couldn’t be a more perfect setup for tech stocks.
With that being said, you don’t need to have a boatload of cash to participate in what could be a powerful and long-lasting rally for tech stocks. If you have, say, $500 that you can won’t need for bills or to cover emergencies, that’s more than enough to buy into three of the fastest-growing and most-exciting tech stocks.
The perfect embodiment of a tech stock that’s embraced the work-from-home trend is edge cloud platform Fastly (NYSE:FSLY). Although the company was already generating significant sales growth prior to the pandemic, the push to remote work environments and online consumption has made, accessibility, security, and reliability for websites and online content more important than ever. Fastly’s solutions help to ensure that content reaches end users quickly and safely.
Though it’s far from a household name — save for the tech-savvy investment community where it’s been lighting up watchlists for months — Fastly has quickly become the edge cloud platform of choice. Shopify, Etsy, Yelp, and Pinterest are just some of the dozens of prominent companies that trust Fastly’s content delivery or cloud/cloud security solutions.
What’s more, Fastly’s growth isn’t entirely dependent on gaining new business. While adding new customers is part of the company’s growth plan, having existing clients spend more is its key operating margin growth driver. Based on a dollar-based net expansion rate (DBNER) of 137% in the second quarter, up from a DBNER of 133% in the sequential first quarter, it’s apparent that existing clients are sticking around and spending more.
Fastly may not be profitable yet, but adjusted gross margin jumped 610 basis points to 61.7% in Q2 2020 from the prior-year period. Further, Wall Street is looking for a more-than-tripling in full-year sales between 2019 ($200 million) and 2023 ($614 million). Fastly is the type of business that could easily deliver double-digit growth every year this decade, and would make for a smart buy for patient, growth-seeking investors.
Another high-growth tech stock that’s kicking tail and taking names in the security space is CrowdStrike Holdings (NASDAQ:CRWD).
CrowdStrike is the first cloud-native cybersecurity solutions provider powered by artificial intelligence. In plainer terms, this means the company’s security solutions are constantly learning and adapting to spot threats. According to the company, its Falcon platform identifies and assesses more than 3 trillion events per week!
As a reminder, no matter how well or poor the U.S. economy is performing, or how large or small a company is, hackers and robots don’t take a vacation day. That makes cybersecurity a basic-need service, which is what provides the transparency of cash flow that CrowdStrike currently enjoys. In the most recent quarter, 91% of CrowdStrike’s revenue was derived from subscriptions. These subscriptions offer juicy adjusted gross margin (78% in Q1 2021) and help promote client loyalty.
Not to sound like a broken record, but CrowdStrike’s success is also built on…
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