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The performance of the technology sector is often measured by the Nasdaq-100 stock market index, which is home to 100 of the largest tech companies listed in the U.S. It was established in 1985, and since then, it has delivered a positive annual return 78% of the time, which makes a losing year relatively rare. 2022 was one of those outliers, with the Nasdaq-100 plunging by 33%.
It’s not all bad news, though. That’s because the index almost never falls two years in a row. In fact, it has only happened one time: during the dot-com tech bust from 2000 to 2002.
That bodes well for 2023, but just how well? The Nasdaq-100 delivers an average return of 51% in the first positive year following a loss, with a minimum gain of 37% across the four instances in 1991, 2003, 2009, and 2019.
This current bear market is somewhat unique. It was sparked, in part, by the Federal Reserve boosting the prime lending rate at the fastest pace in its history in an effort to fight outsized inflation, which reached a 40-year high of 9.1% (annualized) in June 2022. The Fed would rather the inflation rate was closer to the 2% target. Inflation did just record its sixth consecutive monthly decline in December and is now down to an annualized rate of 6.5%. That’s good news for the broader stock market, and it’s one reason the Nasdaq is off to a positive start in 2023 (up 6.2%).
If that recovery trend continues and history does repeat for the stock market, here’s why cybersecurity powerhouse CrowdStrike (CRWD 3.56%) might be one of the best stocks to buy.
Global consulting firm PwC surveys hundreds of the world’s top corporate executives each year. In 2022, those leaders said a cyber attack was the No. 1 threat to revenue. PwC’s 2023 survey was just released, and the executives were asked how they plan to mitigate geopolitical risks. Almost half said they would increase their investment in cybersecurity, which was the top response. Moreover, 25% of respondents believe their businesses would be either highly or extremely exposed to cyber risks over the next five years.
That’s why CrowdStrike might be one of the best stocks to buy right now. Cloud-driven digital transformations in the corporate sector have led to a spike in vulnerabilities because attackers can strike from anywhere in the world.
CrowdStrike is a cybersecurity industry leader with 23 modules that protect everything from the cloud to the endpoint. The company also has a market-leading artificial intelligence (AI) engine that crowdsources mountains of data from customers to rapidly learn and improve. Many cybersecurity providers lean on AI because it can proactively scan for threats and catch them before they do damage. Plus, its response time can be much faster than the typical human response.
CrowdStrike’s growth has been phenomenal across several metrics. As of the third quarter of fiscal 2023 (ended Oct. 31), the company had 21,146 customers, which included over half the Fortune 500 companies. For context, it only had 1,242 customers five years ago in fiscal 2018.
Revenue has skyrocketed over the same period. CrowdStrike expects to deliver over $2.2 billion in the fiscal 2023 full year (ending Jan. 31), which would be an 18-fold increase from fiscal 2018, and 40-fold growth from fiscal 2017.
It still might have plenty of room to grow because its addressable market continues to expand alongside rising demand for advanced cybersecurity tools. In fiscal 2023, CrowdStrike valued its opportunity at $76 billion, so its revenue suggests it has only scratched the surface. But by 2026, it could more than double to $158 billion through a mix of organic growth and because the company intends to offer more products and services.
CrowdStrike’s customers love the platform. The company’s net revenue retention rate (NRR) sits at 123.9%, which means existing customers are spending 23.9% more than they were a year ago.
Here is why that’s key: Investors have sold CrowdStrike stock aggressively in this bear market (it’s down 64% from its all-time high) partly because they don’t want to own shares in companies that are losing money since they’re perceived as risky. Through the first nine months of fiscal 2023, CrowdStrike burned $135 million as it continued to invest in growth by acquiring more customers.
But that spending for new customers makes perfect sense given the company’s NRR: Each customer is effectively becoming 23.9% more valuable with each passing year, so CrowdStrike is right to get them in the door as quickly as possible. That shines through in its exceptional revenue growth. Plus, the company has over $2.4 billion in cash on its balance sheet, so it can afford to sacrifice profitability for many years to come.
With CrowdStrike stock trading at such a steep discount to its all-time high, and history pointing to a strong potential gain in the Nasdaq-100 index in 2023, this might be a golden opportunity to buy the cybersecurity powerhouse.
Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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