The tech market is experiencing rapid growth due to the emergence of various new technologies, which enhance companies’ operational efficiency and productivity. Additionally, the increasing demand for automation and the rising importance of data management are creating fresh opportunities in the sector.

Thus, investors could consider watching fundamentally sound tech stocks: Datadog, Inc. (DDOG), MercadoLibre, Inc. (MELI), and Dynatrace, Inc. (DT).

Rapidly increasing digitization and investments in developing novel software are projected to create new opportunities for software companies. The rising popularity of software as a service trend is also estimated to bolster software market development in the future. 

Additionally, businesses are encouraged to use cloud-based services by government rules to reduce carbon emissions, which is anticipated to improve the segment’s growth prospects. The software market in the United States is estimated to grow at a CAGR of around 7.2% by 2030.

Considering these factors, let’s take a look at the fundamentals of the three tech stock picks.

Datadog, Inc. (DDOG)

DDOG operates an observability and security platform for cloud applications. The company’s products comprise infrastructure and application performance monitoring, log management, digital experience monitoring, continuous profiler, database monitoring, incident management, workflow automation, observability pipelines, cloud cost, and cloud security management.

DDOG’s 7.58% trailing-12-month net income margin is 100.3% higher than the 3.78% industry average. Furthermore, the stock’s 81.24% trailing-12-month gross profit margin is 60.3% higher than the 50.67% industry average.

On November 12, 2024, DDOG introduced Kubernetes Active Remediation, enhancing its automated troubleshooting features to offer Kubernetes users curated guidance, best practices, and comprehensive issue management directly within Datadog’s platform. This addition empowers customers to quickly identify, understand, and resolve issues for faster, streamlined operations.

In the fiscal third quarter ended September 30, 2024, DDOG’s revenues increased 26.0% year-over-year to $690.02 million. Its non-GAAP operating income grew 32.3% from the year-ago value to $173.02 million. Moreover, its non-GAAP net income after tax adjustments and net income per share stood at $165.74 million and $0.46, respectively, representing increases of 31% and 27.8% over the prior-year quarter.

Street expects DDOG’s revenue for the quarter ending December 31, 2024, to increase 21.1% year-over-year to $714.22 million. Its EPS for the same quarter is likely to be $0.43. It surpassed the consensus EPS and revenue estimates in all the trailing four quarters.

The stock climbed 16.6% over the past year to close the last trading session at $144.17.

DDOG’s POWR Ratings reflect its robust outlook. DDOG has a B grade for Growth and a B for Quality. It is ranked #22 out of 40 stocks in the B-rated Software – Business industry. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Beyond what is stated above, we’ve also rated DDOG for Stability, Momentum, Sentiment, and Value. Get all DDOG ratings here.

MercadoLibre, Inc. (MELI)

MELI operates online commerce platforms in the United States. It operates Mercado Libre Marketplace, an automated online commerce platform that enables businesses, merchants, and individuals to list merchandise and conduct sales and purchases digitally; and Mercado Pago FinTech platform, a financial technology solution platform.

MELI’s 52.46% trailing-12-month gross profit margin is 38.8% higher than the 37.79% industry average. Furthermore, the stock’s 7.77% trailing-12-month net income margin is 84.8% higher than the 4.20% industry average.

MELI’s net revenues and financial income for the nine months ended September 30, 2024, increased 37.6% year-over $14.72 billion. The company’s gross profit increased 23.2% year-over-year to $6.83 billion. Its net income increased 54.7% year-over-year to $1.27 billion, and earnings per share increased 53.4% year-over-year to $25.09.

Street expects MELI’s revenue to increase 38.5% year-over-year to $5.90 billion for the first quarter ending March 2025. The company’s EPS for the same quarter is expected to increase 9.7% year-over-year to $7.44. Also, MELI surpassed the consensus revenue estimates in each of the trailing four quarters, which is impressive.

The stock has gained 73% over the past three months to close the last trading session at $1721.80.

MELI’s robust fundamentals are reflected in its POWR Ratings. The stock has a B grade for Momentum and Quality. MELI is ranked #32 out of 49 stocks in the Internet industry.

Click here to access the additional MELI ratings (Growth, Value, Sentiment, and Stability).

Dynatrace, Inc. (DT)

DT provides a security platform for multi-cloud environments. The company operates Dynatrace, a security platform that provides application and microservices monitoring, runtime application security, infrastructure monitoring, log management and analytics, digital experience monitoring, digital business analytics, and cloud automation.

DT’s 9.84% trailing-12-month EBIT margin is 82.5% higher than the 5.39% industry average. Furthermore, the stock’s 82.41% trailing-12-month gross profit margin is 62.6% higher than the 50.67% industry average.

DT’s total revenue for the fiscal second quarter ended September 30, 2024, total revenues grew 18.9% year-over-year to $418.13 million. Its net income and net income per share came in at $44.01 million and $0.15, up 22.9% and 25% year-over-year, respectively.

Street expects DT’s revenue for the quarter ending December 2024 to increase 16.9% year-over-year to $426.85 million. Its EPS is expected to grow 3.5% year-over-year to $0.33 for the same quarter. It surpassed Street revenue and EPS estimates in each of the trailing four quarters.

The stock gained 17.8% over the past nine months, closing the last trading session at $54.10.

DT’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.

The stock has a B grade for Growth and Quality. DT is ranked #43 out of 126 stocks in the Software – Application industry.

In addition to the POWR Ratings highlighted above, one can access DT’s ratings (Value, Stability, Momentum, and Sentiment) here.

What To Do Next?

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DDOG shares were trading at $142.79 per share on Tuesday afternoon, down $1.38 (-0.96%). Year-to-date, DDOG has gained 17.64%, versus a 24.68% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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