History Says the Nasdaq Could Soar: 2 Top Growth Stocks to Buy Now for the Bull Market

History Says the Nasdaq Could Soar: 2 Top Growth Stocks to Buy Now for the Bull Market

THE Nasdaq Composite (NASDAQ INDEX: ^IXIC) entered a new bull market in December 2022, about 17 months ago, and has since rallied 68%. But history shows that more gains await the tech-heavy index. The Nasdaq returned an average of 215% during bull markets since 1990, and it has made these gains over an average of 40 months.

In other words, if the current bull market aligns precisely with the historical average, the index will advance another 147% over the next two years. To be fair, this implies a somewhat unrealistic return of 57% per year. But patient investors still have reason to believe the Nasdaq is rising.

The index has grown 16.1% annually over the past decade, crushing the S&P500The annual return of 12.9%, and similar results are possible in the years to come. To capitalize on this bullish momentum, investors should consider purchasing small positions in Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) And Crowd strike (NASDAQ:CRWD). Here’s why.

1.Alphabet

Alphabet has two important growth drivers: digital advertising and cloud computing. Its subsidiary Google is the largest advertising technology company in the world due to its ability to engage consumers and collect data. Specifically, with six products that reach 2 billion monthly users (think Google Search, Chrome, and YouTube), the company can efficiently capture data that helps advertisers create more effective campaigns.

Similarly, Google Cloud Platform (GCP) is the third largest provider of cloud platform infrastructure and services. While the business lags behind Amazon Web Services and Microsoft Azure by far has gained a percentage point of market share over the past year and this trend could persist as companies invest in artificial intelligence (AI). Certainly, Microsoft has so far outperformed its peers in generative AI, but Google is a long-time leader in AI research and its technological prowess should not be underestimated.

In the first quarter, Alphabet recorded its fourth consecutive acceleration in revenue and net income growth, as shown in the chart below. Revenue rose 15% to $80.5 billion due to particularly strong growth in Google Cloud, the segment including cloud computing services and office productivity software. At the same time, GAAP net income soared 57% to $23.7 billion, thanks to continued focus on cost control.

History Says the Nasdaq Could Soar: 2 Top Growth Stocks to Buy Now for the Bull Market

Alphabet’s revenue and profit growth have accelerated for four consecutive quarters.

Looking ahead, Wall Street analysts estimate that Alphabet will grow its earnings per share by 17% annually over the next three to five years. This forecast makes its current valuation of 26.8 times earnings reasonable, although it represents a premium to the three-year average of 24.6 times earnings. Based on this valuation, I believe Alphabet can outperform the Nasdaq Composite over the next five years, as it has over the past five years.

2. Crowd strike

CrowdStrike offers more than two dozen cybersecurity products through a single platform. The company is a market leader in endpoint security software and managed detection and response (MDR) services, but its platform addresses multiple end markets and CrowdStrike is gaining share in several of them, including cloud security, identity protection, and security information and event management. (SIEM).

CEO George Kurtz attributes this success to superior artificial intelligence capabilities and unique engineering that make its platform the “easiest and fastest cybersecurity technology to deploy.” Additionally, businesses increasingly want to reduce costs by consolidating onto a single platform, especially one known for its industry-leading threat detection, like CrowdStrike’s Falcon platform. .

CrowdStrike reported strong fourth-quarter financial results. Revenue rose 33% to $845 million and non-GAAP net income jumped 102% to $0.95 per diluted share. In the press release, Kurtz said: “Customers favor our single platform approach. » He also noted that enterprises are turning to Falcon for its LogScale next-generation cloud security, identity protection and SIEM solutions.

Management also noted strong momentum with new products, including its IT automation software (Falcon for IT) and its generative AI assistant (Charlotte AI). Falcon for IT is important because it extends CrowdStrike’s addressable market into the security-adjacent observability realm by addressing use cases such as compliance and performance monitoring. Similarly, Charlotte AI enables the company to tap into the demand for automation.

Looking ahead, CrowdStrike benefits from several tailwinds. First, cyberattacks are becoming more and more sophisticated. Second, many companies still buy more than 60 specific products and half still use existing antiviruses, which fail to detect 39% of malware. As a result, deploying effective cybersecurity solutions (including platforms that consolidate products) has become an IT budget priority.

With this in mind, Wall Street expects CrowdStrike to grow revenue by 29% annually over the next five years. This consensus estimate makes its current valuation of 28 times sales reasonable. CrowdStrike has more than doubled the return of the Nasdaq Composite over the past three years, and I believe it can outperform over the next five years from its current valuation.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennevine holds positions at Amazon and CrowdStrike. The Motley Fool holds positions and recommends Alphabet, Amazon, CrowdStrike and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.

History Shows Nasdaq Could Soar: 2 Top Growth Stocks to Buy Now for the Bull Market was originally published by The Motley Fool

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