Two Stocks to Consider for Long-Term Growth Potential

Investing in innovative companies can yield significant returns if approached with a long-term mindset. While stock performance may vary short-term, holding shares in growing businesses often leads to substantial gains over time.

This article examines two competitively positioned companies that could offer promising returns in the years ahead.

1. Datadog

As cloud computing expands, the demand for tools that secure and identify challenges within cloud environments increases. Datadog (NASDAQ: DDOG) is at the forefront of cloud observability and security—a market projected at $72 billion by 2024, according to Gartner. This creates significant long-term opportunities for both the enterprise and its shareholders.

The adoption of cloud computing and artificial intelligence (AI) continues to drive Datadog’s growth. In the first quarter, the company’s revenue surged by 25% year over year, reaching $762 million.

Even with strong growth—often accompanied by a small percentage of its addressable market—Datadog faces intense competition from larger firms like Microsoft Azure. Despite the resources available to these tech giants, Datadog has established differentiation through innovation, regularly releasing new features that improve its offerings.

Recently, the company debuted solutions that allow clients to monitor AI workloads, resulting in a doubling of customers using this feature in the past year. Moreover, a recent deal with a pet supply company is projected to save that client $1 million annually through Datadog’s platform.

Management anticipates adjusted earnings for 2025 will be between $1.67 and $1.71. Currently, shares are priced at $112, reflecting a high valuation based on their earnings. Nevertheless, the company’s consistent growth, coupled with clear opportunities, justifies this premium price.

With a relatively small market share, Datadog presents room for substantial growth. Gradually increasing your investment as the company continues to report strong performance could prove beneficial.

Image source: Getty Images.

2. Cloudflare

As internet connectivity proliferates across devices, businesses increasingly require robust solutions to safeguard access to applications and networks. Cloudflare (NYSE: NET) positions itself as a leader in this arena, effectively blocking billions of threats daily and providing notable returns to investors.

Cloudflare’s extensive global network, spanning over 330 cities, enhances its competitive edge. The firm continues to invest in expanding its infrastructure, securing its position in the market. Currently, it protects nearly 20% of all websites, according to W3Techs.

The subscription-based revenue model has seen remarkable growth, doubling in three years and increasing by 27% year over year in Q1. Cloudflare is investing in AI-optimized servers and has introduced its Workers AI platform, allowing companies to deploy AI applications without heavy infrastructure investments. This innovation helped secure Cloudflare’s largest deal to date: a $100 million agreement over five years with a leading tech firm.

With an adjusted net income of $58 million during Q1 on total revenues of $479 million, Cloudflare is proving itself a sustainable high-growth business. Analysts anticipate that its adjusted earnings could nearly double to $1.44 by 2027.

Though shares trade at high multiples relative to revenue and earnings, Cloudflare’s long-term growth potential continues to justify this valuation. A prudent strategy could involve starting with a small investment and increasing holdings during market dips.

Should You Invest $1,000 in Datadog?

Before purchasing Stock in Datadog, consider this:

A recent analysis from the Motley Fool identified its top ten stocks, and Datadog was not among them. Those featured stocks have the potential for significant returns in the coming years, as evidenced by past performance.

For example, when shares of Netflix were suggested by the Motley Fool on December 17, 2004, a $1,000 investment would now be worth approximately $598,613. Similarly, a $1,000 investment in Nvidia would have grown to about $753,878 following its recommendation on April 15, 2005.

Overall, the Stock Advisor program has demonstrated a total average return of 922%, significantly outperforming the S&P 500’s 169% during the same period.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cloudflare, Datadog, and Microsoft. The Motley Fool recommends Gartner and has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.