Shares of CrowdStrike (CRWD 6.14%), MongoDB (MDB 7.40%), and Datadog (DDOG 7.97%) all spiked on Friday, up 5.5%, 6.3%, and 7.2%, respectively, as of 1:22 p.m. EDT. There wasn’t any material news out of these companies today. However, two main factors seem to be behind today’s bounce.
First, there were some better-than-expected earnings out of software peers today. Second, some additional inflation readings came out, providing hints that inflation may have peaked.
On Friday, the Personal Consumption Expenditures index (PCE) was released by the Commerce Department, showing slowing inflation in April relative to March — although it was still high by recent historical standards. The PCE differs from the Consumer Price Index (CPI) released earlier this month in that it weighs certain household expenditures differently and accounts for consumers substituting goods and services for other goods and services as relative prices change.
The PCE number for April came in at just a 0.2% rise from March, a big step-down after March logged a 0.9% month-over-month rise. On a year-over-year basis, the rise was 6.3%, down from 6.6% in the prior month.
However, before we break out the champagne, “core” PCE, excluding volatile food and energy prices, rose 0.3% month over month, the same as March. That being said, the year-over-year core PCE rate decelerated to 4.9%, down from 5.2% in March.
Still, the slight deceleration was enough to boost stocks that are highly sensitive to interest rates, and this includes high-growth stocks with profits far out in the future like these three all-star tech names.
The qualities of these tech names isn’t really in question, but rather, what investors are willing to pay for them. CrowdStrike continues to be a disruptive leader in cloud-based cybersecurity. MongoDB is similarly disrupting the massive database industry. Meanwhile, Datadog’s cloud-based observability software is critical to the security and functioning of a company’s software applications.
Additionally, all three of these companies provide mission-critical products for enterprises and are showing very high revenue growth. CrowdStrike’s revenue was up 62.7%, MongoDB’s was up 55.8%, and Datadog’s was up 82.8% in their most recent quarters.
Additionally, CrowdStrike’s cybersecurity peer Zscaler (ZS 12.40%) reported better-than-expected numbers today while also boosting its guidance. That helped sentiment around the cybersecurity software space today.
Today was a very nice day for high-growth stocks, but there’s still considerable uncertainty ahead. As we see, these stocks are highly sensitive to inflation and interest rates.
Although today was sort of a good day on that front, inflation is still high, and there’s a wide variance of opinion as to how fast it will come down and when. Additionally, investors will get more information on CrowdStrike and MongoDB next week, when each will report earnings.
Although each of these three stocks have come down a lot, they’re still highly valued based on their sales, relative to pre-2020 history. Therefore, investors should have a long-term view for profitability on each of these names, and perhaps try to construct a discounted cash flow model to see whether they’ve fallen far enough for one’s taste.