In this first-round matchup, the search giant pairs up against the observability platform.
March 14, 2023
Welcome to our 7investing Market Madness competition! Throughout this campaign, we’re matching popular stocks up against one another to determine which will be the best investment over the next three years. And then, by voting in the poll at the bottom of the article, you can help us determine which stock will go on to the next round!
Our rankings are determined by the total return of the stock during calendar 2022. The highest-ranked stock had the best overall return of those in our tournament, and our lowest-ranked stock had the lowest overall return.
In this first-round matchup, search and AI giant Alphabet (NASDAQ: GOOGL) squares up against the cloud-based continual monitor platform Datadog (NASDAQ: DDOG). Alphabet’s stock fell (38%) in 2022, while Datadog was down (60%).
But past performance is not predictive of future returns. Which of these stocks do you believe will provide investors with the best forward three-year return? Read our investing thesis and cast your vote in the poll below!
Our Market Madness tournament is in support of our new 7investing Starter membership, which we are giving away free during the entire month of March. To get started with Starter — and to see how we’re already outperforming the S&P 500 by a convincing margin — click here to automatically apply your “madness” promo code.
Advisor Coverage: Krzysztof Piekarski
Advertising is Alphabet’s (NASDAQ: GOOGL) primary source of revenue. Users worldwide use the company’s many applications and platforms daily — think YouTube and Gmail and Google Drive — allowing Google to use its valuable screen real estate to place the most-suitable ads, at the right time, in front of its vast user base.
The bull case: With multiple projects that cumulatively bring in massive amounts of free cash flow, the company is also the leader of AI/ML; therefore, Alphabet will out-AI all its competitors and strengthen its nearly impenetrable moat around search and its monetization by making the ChatGPT and Microsoft AI fears appear hugely misguided. Google is the Jordan and OG of data and its uses, and it’s competitors are going to twist an ankle trying to play defense.
The bear case: a competitive moat that at once made it possible for Google’s business to be considered the most secure in the world is all of a sudden vulnerable. Was it a sleepy defense that allowed Microsoft to pose a threat to its search engine supremacy with a newly integrated Bing + generative AI competitor? Are the legal threats against Google’s monopoly portentous of a monolith being broken apart by ceaseless competition? Will the age of AI give birth to a new verb for online searches for answers that don’t mean a whole bunch of zeros? It’s not easy defending against a paradigm shift that promises to remodel not just business but all of humanity.
Advisor Coverage: Steve Symington
Datadog shareholders have endured a veritable roller coaster so far in 2023; Shares of the cloud application monitoring and security platform rallied nearly 40% from trough to peak between early January and mid-February, only to all but give up those gains in recent weeks as the market lamented its seemingly solid Q4 report on February 16.
That’s not to say Datadog closed out 2022 on a low note. To the contrary, Datadog’s revenue grew a better-than-expected 44% year over year in Q4, while adjusted earnings of $0.26 per share absolutely crushed consensus estimates for $0.19. It’s number of customers generating annual recurring revenue (ARR) of at least $1 million climbed 47% (to 317), and the company also remained comfortably cash-flow positive, generating operating cash flow and free cash flow of $114 million and $96 million during the quarter, respectively.
So why did shares plunge so hard in the wake of that report? Look no further than Datadog’s forward guidance, which — like so many other high-growth tech companies in recent weeks — predicts revenue growth in the coming year will significantly decelerate to “just” 24% given macro headwinds as Datadog’s client base has become (to borrow management’s explanation) “more cautious with their cloud usage expansion in the near term.”
That said, key to that comment are the words “near term” — management simultaneously insisted they “see no change to the long-term trends towards digital transformation and cloud migration,” and even noted they believe it’s “healthy for customers to optimize” their spending habits in the meantime.
Given Datadog’s propensity for underpromising and overdelivering, I think now is a fantastic time for patient, long-term investors to open or add to their positions in this beaten-down stock.
Will Alphabet or Datadog be the better investment for the upcoming three year period? Cast your vote in our live poll below!
Welcome to our @7investing Market Madness tournament!
— 7investing (@7investing) March 14, 2023
Yesterday’s matchup paired Apple (NASDAQ: AAPL) up against Meta Platforms (NASDAQ: META).
Our analysis showed Apple to be a cash flow generating powerhouse, whose active base of 2 billion consumer devices continues to grow at double-digit rates globally. And despite Meta Platforms facing competitive, social, and regulatory challenges, its core social network platform continues to grow as it aggressively buys back its inexpensive stock.
Ultimately, Apple won 61% of the vote and will be progressing on to the next round.
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