October 19, 2021

2 Growth Stocks Shaping the Future of Technology

In general, digital transformation is a good thing. Solutions like e-commerce, cloud computing, and software-as-a-service...

In general, digital transformation is a good thing. Solutions like e-commerce, cloud computing, and software-as-a-service help enterprises operate more efficiently and scale with greater agility. But the explosion of new technologies also creates complexities.

Specifically, enterprises rely on an ever-increasing number of applications, and many of these applications create troves of data across various infrastructures and systems. Of course, all that data can be a valuable resource — but only if you have the tools to harness its power.

With that in mind, Palantir Technologies (NYSE:PLTR) and Snowflake (NYSE:SNOW) help enterprises manage and make sense of data. And in a larger sense, both companies are shaping the future of technology, allowing clients to make better decisions and build more powerful applications. Here’s what investors should know about these growth stocks.

Image source: Getty Images.

1. Palantir Technologies

Palantir started by building software for defense and intelligence agencies like the CIA and FBI. In fact, the company is best known for its Gotham platform, which played a critical role in helping the U.S. find Osama bin Laden. That reputation gives Palantir an advantage; the company’s history with classified information underscores the security and utility of its platform.

More recently, Palantir has expanded into the commercial sector with the release of its Foundry software. In both areas, the company’s products serve as a central operating system, helping clients integrate, analyze, and govern data usage across their organizations. In turn, that allows data scientists to build models and applications, and it empowers executives to make data-driven decisions.

That brings me to Palantir’s second advantage. The company’s third platform, Apollo, is a continuous delivery system that allows Gotham and Foundry to be deployed in environments where other software-as-a-service (SaaS) products can’t operate. For instance, most SaaS vendors run their software from one or more public clouds, but Palantir can deploy its software across public clouds, private data centers, and classified networks. In fact, clients run Palantir’s SaaS platforms on oil rigs in the middle of the ocean, on disconnected laptops in Humvees, and on airplanes flying at 30,000 feet.

Over the past year, Palantir has posted solid top-line growth, though it still has relatively few customers.

Metric

Q2 2020 (TTM)

Q2 2021 (TTM)

Change

Customers

137

169

23%

Revenue

$901.1 million

$1.3 billion

47%

Data source: Palantir SEC filings, Ycharts. TTM = trailing-12-months.

Going forward, Palantir is well positioned to gain momentum. The company puts its market opportunity at $119 billion, and management is forecasting revenue growth of at least 30% through 2025.

With that in mind, investors should pay attention to Palantir’s ability to add new customers, and its ability to expand in the commercial sector. Last quarter, commercial revenue rose just 28%, growing far slower than total sales. That figure needs to accelerate if Palantir hopes to scale its business.

2. Snowflake

According to Snowflake, nine out of 10 IT leaders report problems relating to data silos. Put another way, these companies have data spread across so many disparate systems that it’s difficult to unify that information and draw insights.

To solve that problem, Snowflake created the Data Cloud, a network that connects thousands of companies and their data. This comprehensive platform combines the functionality of legacy solutions, like data pipelines for mobility, data lakes for storage, and data warehouses for analytics. In short, this unified approach breaks down silos, allowing clients to make informed decisions, build data-driven applications, and securely share data.

That last use case is particularly important. Snowflake’s governance tools allow clients to create secure data hubs, helping them share data inside and outside of their organizations. More importantly, Snowflake launched its data marketplace in 2019, allowing clients to monetize and acquire data sets from other customers.

This creates a network effect: As more enterprises adopt the Data Cloud, more data sets will be made available through Snowflake’s marketplace, creating value for all clients. This virtuous cycle has already been a powerful growth driver, but it should continue to reinforce Snowflake’s advantage over time.

Metric

Q1 2020 (TTM)

Q1 2022 (TTM)

Change

Customers

2,720

4,532

67%

Revenue

$329.9 million

$712.2 million

116%

Data source: Snowflake SEC filings, Ycharts. TTM = trailing-12-months. Note: Q2 2022 ended April 30, 2021.

Looking ahead, Snowflake is well positioned to grow its business. The company puts its market opportunity at $90 billion, and management believes product revenue will reach $10 billion by fiscal 2029, representing 44% annualized growth.

In particular, investors should pay attention to the size of Snowflake’s customer base. This metric is crucial to the long-term success of its data marketplace, which surpassed 500 listings in June. However, if Snowflake maintains its current momentum, that figure should get bigger very quickly.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Source link