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The tech sector has come under severe pressure this year as rising interest rates pushed investors into more conservative sectors. But this selloff has also created rare buying opportunities for patient investors who can handle short-term volatility.

So today, I’m going to look at a trio of promising tech stocks that could still generate above-market returns over the next few decades — The trading post (TTD -4.65%), Datadog (DDOG -3.95%)and Microsoft (MSFT -1.18%) – and explain why they are worth buying today.

Image source: Getty Images.

1. The Trading Post

As the world’s largest independent demand-side platform for digital ads, The Trade Desk enables ad agencies, advertisers and trade desks to bid on programmatic ad inventory. In his last quarter, he served over 1,000 clients and maintained a retention rate of over 95%.

The Trade Desk serves ads for mobile, desktop and connected television (CTV) platforms, but generates most of its growth in the CTV market, which benefits from the secular expansion of streaming services and the death of linear television platforms. netflixThe recent decision to launch a cheaper ad-supported tier also indicates that paid streaming services will follow this trend.

Between fiscal 2016 and fiscal 2021, its revenue grew from $203 million to $1.2 billion, representing a compound annual growth rate (CAGR) of 43%. Its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) grew at a CAGR of 50% and reached $503 million in 2021.

In fiscal 2022, analysts expect its revenue and adjusted EBITDA to grow 33% and 22%, respectively, even as macro headwinds dampen market demand for ads digital. The Trade Desk isn’t cheap at 36 times this year’s adjusted EBITDA, but its robust growth rates and strong exposure to the growing CTV advertising market should justify the higher valuation.

2. Data dog

Datadog’s software platform allows companies to monitor all of their databases, servers and applications in real time. It pulls this data into unified dashboards, making it easier for IT pros to diagnose issues.

Datadog has grown like a weed since its public debut in 2019. Between 2019 and 2021, its revenue grew from $363 million to $1.03 billion, representing a CAGR of 68%. It also became profitable on a non-GAAP (generally accepted accounting principles) basis in 2020 and more than doubled its non-GAAP earnings per share (EPS) the following year.

Its number of customers who generated annual recurring revenue (ARR) of at least $100,000 increased from 858 at the end of 2019 to 2,250 in the first quarter of 2022, as did its net retention rate in dollars (which measures its growth per customer existing) has exceeded 130% for 19 consecutive quarters.

Analysts expect that momentum to continue this year, with its revenue and adjusted EPS rising 57% and 56%, respectively. Datadog shares aren’t cheap at 185 times forward earnings and 21 times sales this year, but it’s one of the few hyper-growth stocks I’d still recommend buying in this bear market. .


Finally, investors who think The Trade Desk and Datadog are too risky can simply buy Microsoft as an evergreen growth play. Under Satya Nadella, who took over as the tech giant’s third CEO in 2014, Microsoft has emerged as a cloud software giant and once again impressed growth-oriented investors.

Between fiscal 2014 and fiscal 2021, which ended last June, Microsoft’s commercial cloud revenue grew from 5% to 41% of its annual revenue. Its revenue also increased from $86.8 billion to $168.1 billion, representing a CAGR of 10%, while its EPS increased at a CAGR of 17%.

Today, Microsoft’s Azure is the second largest cloud infrastructure platform in the world after Amazon Web Services (AWS), and it remains a compelling alternative for businesses – especially retailers – that don’t want to tie themselves to Amazon’s most profitable business division.

Microsoft’s transformation of its Office desktop software into cloud-based services has also kept it from being disrupted by Alphabet‘s Google, and it continued to grow its hardware business with new devices and its Xbox games division with big acquisitions and new subscription services.

Analysts expect Microsoft’s revenue and profit to rise 18% and 16% respectively this year as its cloud business continues to expand. Its stock still appears to be reasonably valued at 25 times forward earnings, and it could still have plenty of wiggle room over the next few decades.

Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Leo Sun has positions in Alphabet (A shares) and Amazon. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Datadog, Microsoft, Netflix and The Trade Desk. The Motley Fool has a disclosure policy.