It’s no secret that catching a stock early has the potential to promise investors massive gains over a long-term time horizon. It’s always difficult to identify the IPOs with solid fundamentals that will continue to grow year-on-year. Especially with how stocks are susceptible to increased volatility at IPO, this can be nearly impossible.
At IPO, more often than not, these companies don’t have solid financials. Analyst estimates can widely vary, resulting in massive misses on earnings. While a company’s financial metrics can be used as a relative gauge of financial health, they aren’t an end-all be-all for investors. The advent of AI can be seen in the market, poising many up-and-coming technology stocks to be the NVIDIAs (NASDAQ:NVDA) or Googles (NASDAQ:GOOG, NASDAQ:GOOGL) of the future.
Keeping this in mind, here are three early-stage tech stocks with high growth potential.
Astera Labs (ALAB)
Astera Labs (NASDAQ:ALAB) is a semiconductor company offering connectivity solutions to aid hyperscalers and data centers. ALAB remains a promising investment during the age of AI as one of the new early-stage tech stocks.
Despite a shaky stock price following their IPO in March 2024, ALAB is up 12.9% YTD. In addition, revenue growth (YoY) is up 44.97%, with analysts predicting continuous growth for 2024 Q3 and Q4 reports. ALAB also demonstrates impressive profitability, with a 77.17% growth profit margin, 56.52% higher than the sector median. Although 2024 Q1 earnings reported a $93 million net loss, this can primarily be attributed to underwriting expenses following their successful IPO.
ALAB continues to position itself at the forefront of the semiconductor connectivity solutions industry. This is exemplified by through its retimer release: the Aries 6 Retimer. This new product allows AI platform developers to design high bandwidth, low latency PCIe connectivity. The capabilities on the Aries 6 establish ALAB as a retimer industry market leader. Expanding their operations, ALAB recently announced a new campus in India, enabling the company to tap into the rich engineering talent and interconnecting technologies in the region.
ALAB stands out as a leading innovator in the semiconductor connectivity solutions industry. Its impressive financial performance and large potential for growth make it a compelling choice in the AI era.
Rubrik (RBRK)
Rubrik (NYSE:RBRK) is a cloud data management and data security that IPO’d in April 2024. Yahoo! Finance reports 12 analysts predicting a 1-year price range on RBRK between $40.00 and $50.00, with a mean of $45.86.
RBRK showed signs of seemingly having difficulty in handling operational expenditures with a net income of -$732.09 million. Conversely, the company reports a positive free cash flow of $297.12 million, conveying strong profitability. However these metrics make sense in context. The large negative net income stems from switching business models from selling licenses of products to a subscription service, which isn’t counted in FCF.
RBRK has positioned itself for future growth through a strategic partnership with fellow industry leader Crowdstrike(NASDAQ:CRWD). This partnership merges Rubrik Security Cloud’s data-centric security attack analysis with Crowdstrike’s AI-powered mobile device cybersecurity defense platform. The result is a platform that can detect, investigate and respond to cybersecurity threats. In addition to creating a comprehensive cybersecurity platform, the partnership aids Rubrik’s business model overhaul with the potential to grow the new subscription service business model. With its strategic partnership and new business model, Rubrik is one of the early-stage tech stocks I highly recommend.
Arm Holdings (ARM)
Arm Holdings (NASDAQ:ARM) is a British microprocessor manufacturer and software developing company joining the charge in the recent artificial intelligence boom. As one of the early-stage tech stocks IPO’ing back in September 2023, its share value has over doubled YTD.
Despite concerns of overvalued shares, financials for ARM back up the lofty projections. In its most recent March 2024 earnings report, the firm boasted a 46.6% increase in total revenue YOY. Furthermore, this was accompanied by 224.00 million in net income, an astounding 7366.67% YOY increase in the metric. Coupled with a 6.5% decrease in total liabilities, ARM’s remarkable growth is more than justified.
The current AI Boom only strengthens ARM’s position in the market. With other chip makers such as Nvidia soaring to record highs, ARM benefits through their collection of royalties and commissions from other tech giants from licensing agreements. In addition, bullish sentiment goes beyond the retail market, with institutional investors also catching on. At the end of Q1 2024, 29 hedge funds had large positions on ARM. With a strong balance sheet and support across the industry, I would advise taking a closer look at buying ARM.
On the date of publication, Matthew Rodrigues did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held long positions in NVDA, GOOG, and CRWD.
