3 High Growth Tech Stocks to Buy as 2023 Approaches

A number of high-growth tech stocks hit all-time highs during last year’s buying frenzy in growth stocks. But this year, many stocks have fallen as rising interest rates and other macroeconomic headwinds have pushed investors toward more conservative investments.

The selloff fired many enthusiastic investors. But it has also created promising buying opportunities for patient investors who haven’t jumped on the high-growth bandwagon. Let’s examine three stocks that deserve a second look: Zscaler (ZS 3.44%), Cloudflare (NET 5.16%)And Wolfspeed (WOLFF 0.68%).

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1. Zscaler

Zscaler offers “zero trust” services that treat everyone — including the CEO — as a risk. Unlike traditional cybersecurity companies that bundle their services with web tools, Zscaler offers only cloud-native services that are scalable, constantly evolving, and easily scalable as an organization expands.

Zscaler has grown like a weed since its initial public offering in 2018. The number of customers doubled from 3,250 at the end of fiscal 2018 (which ended in July) to more than 6,700 at the end of fiscal 2022. The revenue had a compound annual growth rate (CAGR) of 55% between 2018 and 2022 and expects a growth of 40% in fiscal 2023.

According to generally accepted accounting principles (GAAP), the company is still not profitable. But it is profitable on a non-GAAP (adjusted) basis from fiscal 2019, and expects its adjusted earnings per share (EPS) to grow from 78% to 81% this year.

The stock isn’t cheap at 96 times earnings and 9 times next year’s sales, and Zscaler will face challenges in the near term as companies tighten spending to deal with macro headwinds. But I believe this high-growth stock may still have a lot of room to run, and its decline of more than 60% this year could represent a great long-term buying opportunity.

2. Cloudflare

Cloudflare provides a cloud-based content delivery network (CDN) that accelerates the delivery of digital media on websites. It achieves this by storing cached copies of content on a sprawling network of “edge” servers that are physically closer to website visitors than the origin server. It also protects those websites from bot-based cyber attacks.

Cloudflare Launched in 2019, it now handles an average of 39 million HTTP requests per second and provides data from over 100 cities in 275 cities. Its annual revenue had a CAGR of 51% from 2019 to 2021 and expects its revenue to rise another 48% to 49% this year. It also turned profitable in the first nine months of 2022 on an adjusted basis, and expects to remain in the black for the rest of the year.

Cloudflare isn’t profitable by GAAP measures yet, and the stock isn’t a screaming bargain at more than 300 times earnings and 12 times sales next year. But it’s still a solid investment if you believe the company has grown faster than its smaller rivals in the CDN space and will benefit from the expansion of the World Wide Web.

3. Wolfspeed

Wolfspeed is one of the world’s leading manufacturers of wide bandgap (WBG) semiconductors. WBG chips are manufactured with silicon carbide and gallium nitride, which allows them to operate at higher voltages, temperatures and frequencies than traditional silicon chips. That resistance makes them ideal for short-lived LEDs, lasers, 5G base stations and military radar, as well as batteries and power plants for electric vehicles.

The WBG market is still a small area of ​​the semiconductor sector, but it is growing rapidly. Wolfspeed’s revenue fell 16% in fiscal 2020 (which ended in June) as it struggled with pandemic-related outages, but rose 12% in fiscal 2021 and grew 42% in fiscal 2022. Analysts expect revenue to increase by 34% this year. Year on year as other big chipmakers with high exposure to the macro-sensitive PC, smartphone and data center markets struggle with lower growth.

It also recently opened the world’s largest 200mm silicon carbide plant to strengthen its market dominance and could benefit from the CHIPS and SCIENCE Act as it manufactures its chips in the US.

Wolfspeed isn’t yet profitable by GAAP or non-GAAP measures, but at a reasonable price it looks like it’s valued at 7 times sales next year, and the business could still see explosive growth as more companies recognize the importance of WBG semiconductors. Investors who recognize the potential for growth today will be richly rewarded in the future.

Leo San has no position in the mentioned shares. He has spots in the Motley Fool and recommends Cloudflare, Wolfspeed, and Zscaler. The Motley Fool has a disclosure policy.

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