Over the past year, there’s been a notable rally in high-growth stocks as the market anticipated lower interest rates, driving up both their stock prices and valuations. However, with these impressive gains, some investors are now hesitant about investing in these high-performing stocks, especially with the looming threat of new tariffs and trade disputes that could potentially disrupt the bullish run that began in October 2022.
In spite of these concerns, long-term investors should not shy away from investing in leading tech companies that have ample room for growth in the coming decades. In my view, there are three standout contenders still worth considering in the midst of this exuberant market: ServiceNow (NOW -1.94%), Toast (TOST 0.70%), and Affirm (AFRM -2.32%). Let me walk you through the reasons why these companies are compelling investments.
ServiceNow
ServiceNow’s digital workflow platform stands out as a robust solution for managing unstructured work patterns, which helps companies expand efficiently, reduce costs, and improve support for both hybrid and remote work setups. Their Now Assist AI platform enhances these benefits with AI-driven chatbots and automation tools designed for employees.
Thanks to this business model, ServiceNow is somewhat shielded from broader economic challenges, as companies often rely on its tools to streamline operations, especially during tough economic times. The company’s adjusted revenue recorded a 23.5% increase in 2023 and a 22.5% uptick in 2024. Analysts predict it will grow at a compound annual growth rate (CAGR) of 19% over the next three years. Notably, ServiceNow is profitable according to generally accepted accounting principles (GAAP), with analysts forecasting its earnings per share (EPS) to grow at a CAGR of 28% between 2024 and 2027.
The company’s future growth is expected to be fueled by acquiring new government contracts and an increased reliance on Now Assist’s AI capabilities. In their most recent earnings call, CEO Bill McDermott described the company as the "control tower for AI transformation," emphasizing that their AI platform strategy is gaining traction and scaling effectively.
Though ServiceNow’s stock is not cheap, priced at 15 times this year’s sales, it shows promise for growth in the coming decades. Its product ecosystem is sticky, resilient to economic slowdowns, and well-positioned in the rapidly expanding cloud and AI markets.
Toast
Toast provides an integrated solution for restaurants, offering point-of-sale (POS) systems, guest and kitchen displays, along with cloud services for managing payroll, loyalty programs, online orders, and reservations. Simply put, it’s the go-to platform for the digital transformation of restaurants.
When Toast went public in 2021, it was serving 48,000 restaurants. This base has since expanded to nearly 127,000, as reported in its latest quarterly update, showcasing growth even amidst the challenges of the pandemic and inflation impacting the restaurant industry over the past five years.
Looking to the future, Toast is focused on boosting its growth by expanding higher-margin subscription services and its financial technology solutions segment, thus reducing dependency on low-margin payment processing fees. The company has streamlined its operations through significant layoffs in 2020 and 2024, and continues to cut other expenses.
Toast’s revenue saw a 60% increase in 2022 and a 42% rise in 2023, with analysts projecting a 24% CAGR from 2023 to 2026. During the same period, its adjusted EBITDA is expected to grow at a CAGR of 129%. While its business is maturing, there’s still considerable potential for growth as more traditional restaurants go digital. This promising outlook is for a stock valued at a mere 4 times next year’s sales.
Affirm
Affirm has carved out a niche as a leading provider of buy now, pay later (BNPL) services, offering microloans to break purchases into smaller installments. This is particularly appealing to younger or lower-income shoppers who may not qualify for credit cards.
Unlike traditional credit cards, Affirm does not charge interest on payments split into four installments and has no hidden or compound interest fees. It’s also a favorite among large merchants since they can often secure lower BNPL fees compared to the typical swipe fees of 1.5% to 3.5% charged by credit card companies.
Although Affirm’s revenue grew by only 18% in fiscal 2023 due to the end of pandemic-driven demand and inflationary pressures, fiscal 2024 proved brighter with a 46% revenue increase spurred by more merchants joining the platform, the introduction of the Affirm Card combining debit and BNPL features, and increasing sales in travel and general merchandise. The company’s loan delinquency rate remained stable at just 2.8% by the end of the latest quarter.
Looking ahead from fiscal 2024 to 2027, analysts anticipate a 28% CAGR in Affirm’s revenue as the economic conditions settle. The company’s adjusted EBITDA is also projected to turn positive in fiscal 2025, surging at a CAGR of 327% over the subsequent two years. At 10 times this year’s sales, Affirm may not appear cheap, but it represents an attractive long-term play on the expansion of the burgeoning BNPL sector and the disruption of traditional credit cards.
