Nasdaq Sell-Off: 2 Growth Stock Billionaires Buying in Q1
the Nasdaq Compound fell 9% in the first quarter as many investors weighed their concerns about the strength of the economy. Still, a flurry of Form 13-Fs recently filed with the U.S. Securities and Exchange Commission suggests some asset managers remain bullish on growth stocks.
In the first quarter, billionaire Chase Coleman of Tiger Global Management added more than a million shares of CrowdStrike Holdings (CRWD 4.28%) to its hedge fund, making it the third largest position in the portfolio. Similarly, billionaire James Simons of Renaissance Technologies doubled down on You’re here (TSLA -6.42%)and the stock now ranks second among its hedge fund holdings.
Clearly, these professional fund managers see something they like in both companies. But let’s take a closer look before adding them to your own portfolio. Here’s what you need to know.
1. CrowdStrike Holdings
CrowdStrike is the gold standard for cloud endpoint and workload security. Its cloud-native architecture is the basis of this success, as it allows the company to collect massive amounts of data from devices on its network. In fact, its Falcon platform captures trillions of security signals every week and relies on artificial intelligence (AI) to surface insights and prevent cyberattacks.
This forms a powerful network effect. Each new data point slightly improves CrowdStrike’s AI models to identify malicious activity, which means that each new customer creates additional value for all existing customers and vice versa. To add, CrowdStrike has further differentiated itself with a broad suite of software beyond endpoint and cloud workload security, including solutions for identity protection, threat intelligence and managed services.
Financially, CrowdStrike is firing on all cylinders. Its customer base jumped 65% to 16,325 in the past year, and the average customer spent 24% more, demonstrating the successful execution of its land-based and expansive growth strategy. In turn, revenue soared 66% to $1.4 billion and free cash flow jumped 51% to $442 million.
Looking ahead, CrowdStrike is well positioned to maintain this momentum. The company estimates its market opportunity at $67 billion by 2024, and its capacity for innovation should keep it at the forefront of cybersecurity. For example, CrowdStrike recently launched the industry’s first fully managed identity threat protection service. This means organizations that lack the time or talent to manage their own security can outsource it to CrowdStrike. And adding identity protection to this service is especially important because 80% of cyberattacks start with compromised credentials.
In summary, CrowdStrike has a strong presence in a critical sector, and its market opportunity is only expected to expand as digital transformation creates more attack surfaces for hackers. With that in mind, Coleman’s decision to add stocks to his hedge fund makes a lot of sense. More importantly, with the stock price down 50% from its peak, now is a great time to buy some stocks for your own portfolio.
In the first quarter, Tesla again ranked as the top electric vehicle (EV) brand, capturing a 15.5% market share. The company also continued to take part in total car sales in its three main geographies: China, Europe and the United States. But the real story was Tesla’s operating margin.
In the first quarter, revenue rose 81% to $18.8 billion, but GAAP earnings jumped 633% to $2.68 per diluted share. What drove this accelerated net income growth? Tesla posted an industry-best operating margin of 19.2%, fueled by increased production, pricing power and initiatives such as one-piece molding. That number is expected to drop in the short term as production ramps up at new factories in Berlin and Texas, but this increased capacity should make Tesla even more efficient in the long term.
Even more exciting, CEO Elon Musk has announced plans for an EV robotaxi. The company aims to reach volume production by 2024, bringing Tesla one step closer to achieving its goal of launching an autonomous transportation platform. On that note, Musk thinks the company’s fully autonomous driving software will be safer than a human driver by the end of the year, paving the way for the software to become the most important source of profitability for the industry. automotive business of Tesla.
Asset manager Ark Invest has a similar outlook. In a recent report, the company claims that autonomous ride-sharing platforms could generate $2 trillion in profits by 2030, while increasing global economic output by $26 trillion. On that note, Tesla has more real-world driving data than any rival, arguably making it a frontrunner in the race to build a fully self-driving car.
If you think self-driving cars sound like science fiction, what about intelligent machines? Musk thinks Tesla’s autonomous humanoid robot (known as Optimus) will ultimately be worth more than the automotive sector. The company could have a prototype as early as this year, and full-scale production could begin next year.
The main argument against Tesla is the valuation. It is currently worth more than the next seven automakers combined, and the stock trades for 12.8 times sales. But if Tesla is executing on its vision of robotaxis and autonomous robots, that multiple may seem cheap in hindsight. Renaissance Technologies clearly believes in the company, but should you add the stock to your own portfolio? It depends on your risk tolerance. If you can handle the volatility and believe in Tesla’s vision, I think it’s worth buying a few stocks. For what it’s worth, I own the stock and have no intention of selling.