Investing in US growth stocks can come with a lot of risk. These companies can often be far more volatile, and there’s the international currency exchange impact to consider as well.
However, the Nasdaq is home to some exciting opportunities that could propel my wealth to new heights in the long run. And with many valuations still in the gutter, I recently went on a shopping spree, snapping up more shares in Datadog (NASDAQ:DDOG).
A new leader in cloud technology?
Datadog isn’t a household name. The platform is operating behind the scenes of over 25,000 enterprises worldwide, enabling businesses to monitor and manage the flow of inflation across their entire technology stack. Apart from letting companies control their applications from a single location, Datadog triples as a cybersecurity, compliance and efficiency tool.
Many businesses, especially in the tech sector, are trying to cut costs. Cloud platform providers have had to endure a significant slowdown in spending. And yet an exception seems to have been made for this firm since the latest earnings report was pretty impressive.
Total revenue jumped 25% year-on-year while customers spending more than $100,000 increased by 20%. An estimated 82% of clients use two or more of the platform’s additional subscription modules. And the company has recently announced the release of new modules, including AI-powered solutions.
This ultimately pushed operating profits to just $4.2m shy of entering the black in the most recent quarter. And when paired with a hike in revenue and earnings guidance, shares of Datadog have been on the rise. They’ve surged almost 40% since the start of November.
Every investment carries risk
Datadog continues to integrate itself at the heart of its customers’ operations. But that also makes it an increasingly attractive target for ‘malicious mongrels’. A lot of sensitive data and information is flowing through its platform. And if the company were to suffer a breach, it could expose this business to some significant reputational damage.
That could be especially problematic given that there are competing solutions to Datadog. And I’d be shocked if they didn’t use such an event as a perfect opportunity to lure customers away and steal market share.
It’s also critical to realise that the valuation, while down nearly 50% from its peak in October 2021, still trades at lofty multiples. As such, volatility is to be expected, especially should the company start to fall short of investor expectations.
Nevertheless, Datadog has a fairly consistent track record of beating analyst predictions. It’s yet to enter the realm of profitability. But its impressive free cash flow generation has made it financially independent, with $2.2bn of cash in the bank, enough to cover all of its outstanding liabilities.
Therefore, while there’s no denying the high-risk profile surrounding this growth stock, it’s one I feel is worth taking, given the long-term potential. That’s why I’ve already been adding some more shares to my existing position.
