- The tech-heavy Nasdaq 100 has been the top-performing index on Wall Street in 2023.
- Receding inflation worries and easing fears about further Fed rate hikes will likely continue to boost companies in the tech sector as earnings season kicks off.
- As such, here are five growth stocks worth owning ahead of their respective earnings.
The technology-heavy Nasdaq 100 has been the top performer of the major U.S. indices by a wide margin thus far in 2023, soaring 42.3% year-to-date to reach its highest level since April 2022.
The ongoing tech rally has been fueled by growing signs that U.S. inflation may have peaked, raising hopes the Federal Reserve will end its year-long rate hike cycle.
While most of the focus will be on the big-name mega-cap stocks during the upcoming earnings season, there are several other fast-growing names set to enjoy robust earnings and revenue growth thanks to surging demand for their products and services.
Here are five growth stocks worth owning ahead of their quarterly reports in the weeks ahead.
1. Arista Networks
I believe that Arista Networks (NYSE:ANET) is well positioned to achieve ongoing profit and sales growth as the economy continues to undergo a sea change of digitization amid the current environment.
The Santa Clara, California-based networking-infrastructure company, which sells switches that speed up communications among racks of computer servers packed into data centers, has been successful in grabbing market share from chief rivals Cisco Systems (NASDAQ:CSCO) and Juniper Networks (NYSE:JNPR) in recent years. It counts Microsoft (NASDAQ:MSFT) and Meta Platforms (NASDAQ:META) as its two largest customers.
Arista is slated to report second-quarter earnings on Monday, July 31. Not surprisingly, EPS estimates have seen 17 upward revisions in the 90 days ahead of earnings to reflect increasing optimism.
Source: InvestingPro
Consensus estimates call for Arista to report second-quarter profit of $1.43 per share, rising 33.3% from EPS of $1.08 in the same quarter a year earlier.
Revenue is forecast to increase 30.5% from the year-ago period to $1.37 billion, boosted by strong demand for its cloud computing network gear from large companies, government agencies, and educational institutions.
Arista has beaten Wall Street’s profit and sales expectations for 35 consecutive quarters, a testament to the strength and resilience of its underlying business as well as strong execution across the company.
ANET stock closed at $168.61 on Thursday, not far from a recent record high of $178.36 touched on May 30, earning it a valuation of $52 billion.
Shares have scored a gain of almost 40% so far in 2023.
Despite the recent uptrend, all 27 analysts surveyed by Investing.com rate Arista’s stock either as ‘buy’ or ‘neutral’, reflecting a bullish recommendation.
2. Cloudflare
Cloudflare (NYSE:NET) stock is up 49.5% year-to-date and should continue appreciating in the months ahead as investors dial back expectations for future rate hikes.
The next major catalyst is expected to arrive when Cloudflare reports second-quarter earnings on Thursday, Aug. 3 and it is expected to shatter its sales record once again.
The San Francisco, California-based cloud networking and security solution provider is forecast to earn $0.07 per share, compared to breakeven earnings per share in the year-ago period.
Meanwhile, revenue is seen increasing 30.4% year-over-year to $305.8 million. If that is in fact the reality, it would mark Cloudflare’s highest quarterly sales total in its history thanks to ongoing demand for its web security, content delivery, and enterprise networking services and solutions.
As could be expected, Wall Street analysts are extremely optimistic ahead of the Q2 report, with analysts increasing their EPS estimates 19 times in the past three months to reflect a gain of over 400% from their initial expectations.
Source: InvestingPro
At current levels, Cloudflare, which has become one of the premier names in the fast-growing cloud and edge computing sector, has a market cap of $22.4 billion.
Wall Street remains optimistic on NET, as per an Investing.com survey, which revealed that 26 out of 28 analysts covering the stock rated it as either a ‘buy’ or ‘hold’.
3. Palo Alto Networks
Palo Alto Networks (NASDAQ:PANW) is widely considered as one of the leading names in the cybersecurity software industry. Its core product is a platform that includes advanced firewalls and intrusion prevention systems which offer network security, cloud security, and endpoint protection.
Palo Alto Networks is not expected to report earnings until late August, however, sell-side confidence is brimming. The last 36 EPS revisions from analysts have all been to the upward side and 37 analysts have a Buy-equivalent rating on the stock vs. 6 Hold-equivalent ratings and 0 Sell-equivalent ratings.
Source: InvestingPro
Wall Street sees the Santa Clara, California-based cybersecurity specialist earning $1.29 a share in its fiscal fourth quarter, soaring 63.2% from EPS of $0.79 in the year-ago period, while revenue is forecast to increase 26.4% annually to $1.96 billion.
If confirmed, it would mark Palo Alto Networks' 11th straight quarter of accelerating sales, reflecting robust demand for its various cloud-delivered security services.
PANW stock rose to an all-time high of $258.88 on July 5; it ended Thursday’s session at $239.01. At current valuations, the global cybersecurity leader has a market cap of roughly $73 billion.
Shares roared back in the first half of 2023 following last year’s steep selloff, gaining 71.3% year-to-date.
4. CrowdStrike
Widely viewed as one of the leading names in the cloud-based cybersecurity industry, I believe CrowdStrike (NASDAQ:CRWD) stock is well worth buying amid the current market backdrop.
The Austin, Texas-based giant is anticipated to deliver explosive profit and sales growth when it reports second-quarter financial results on Wednesday, Aug. 30, due to favorable cybersecurity demand trends.
Earnings estimates have been revised upward 25 times in the past 90 days, according to an InvestingPro survey, compared to just three downward revisions, as Wall Street grows increasingly bullish on the cybersecurity company.
Additionally, more than three-quarters of analysts surveyed by Investing.com rate CRWD at the equivalent of a ‘buy’ rating, with an average price target of around $178, implying upside of 17.8% from recent trading levels.
Source: InvestingPro
Consensus calls for earnings of $0.56 per share, improving 55.5% from EPS of $0.36 in the year-ago period. Revenue is forecast to increase 35.3% to a record $724.4 million thanks to growing demand for its cloud-based cybersecurity platform, which is used to detect and prevent security breaches.
The information security specialist company has topped Wall Street’s expectations for earnings and revenue for 16 consecutive quarters since going public in June 2019, underlining the strength of its underlying business.
CrowdStrike — which provides cloud workload and endpoint security, advanced threat intelligence, and sophisticated cyberattack response services — has been one of the main beneficiaries of the surge in cyber spending from corporations and governments around the world as they respond to growing digital security threats.
CrowdStrike’s stock has outperformed the broader market in 2023, with shares up 43.2% year-to-date, as high-growth technology shares have come back in favor following last year’s brutal selloff. The endpoint security leader has a market valuation of around $36 billion as of Thursday’s closing price.
5. Zscaler
Zscaler (NASDAQ:ZS) stock has also had excellent momentum this year and should continue appreciating as it grows earnings, making the cloud security company a buy for the near term.
The San Jose, California-based firm, which provides automated threat forensics and dynamic malware protection against advanced cyber threats, is forecast to report strong double-digit growth for its fiscal Q4.
Not surprisingly, an Investing Pro survey of analyst earnings revisions points to mounting optimism ahead of the print due in early September, with Wall Street growing increasingly bullish on the cyber company’s future prospects. Earnings estimates have been revised upward 29 times in the past 90 days, compared to zero downward revisions.
Source: InvestingPro
Consensus expectations call for Zscaler to post a profit of $0.49 a share, surging 96% from earnings of $0.25 a share in the year-ago quarter. If confirmed, that would mark the most profitable quarter in the company’s history.
Meanwhile, revenue is anticipated to jump 35.3% year-on-year to an all-time peak of $430.5 million, benefitting from solid demand for its cybersecurity platform, which lets organizations provide secure access to internal applications and services from remote locations.
Demonstrating the resilience of its business, Zscaler has beaten Wall Street’s top line expectations for 20 straight quarters dating back to Q2 2018, while trailing revenue estimates only once in that span.
ZS stock has gained nearly 30% year-to-date, rising alongside much of the tech sector. At current levels, the information-security specialist has a market cap of $21 billion.
Wall Street has a long-term bullish view on ZS, with all 40 analysts surveyed by Investing.com rating it as either a ‘buy’ or a ‘hold’. Shares have an average analyst price target of about $167, representing an upside of 15% from current levels.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY (NYSE:SPY)), and the Invesco QQQ Trust ETF (NASDAQ:QQQ). I am also long on the Technology Select Sector SPDR ETF (XLK). I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.