The S&P 500 has maintained robust performance in 2025, posting a 10% year-to-date gain. This follows consecutive years of over 20% returns in 2023 and 2024. The index now trades at a forward P/E ratio exceeding 22, surpassing its 30-year average of 17. Growth stocks have been pivotal to this momentum, with many exhibiting earnings multiples above the index average. For investors with limited capital, identifying undervalued growth candidates remains viable.
1. Datadog
Datadog (DDOG) specializes in cloud observability solutions, positioning itself to benefit from escalating AI infrastructure demand. Its consumption-based pricing model aligns revenue growth with increasing cloud expenditure. The company has introduced AI-driven tools, including autonomous code investigation agents and large language models, to enhance its platform. While these initiatives have driven 28% revenue growth, they have also compressed operating margins by 4 percentage points. The stock currently trades at 12x forward sales, reflecting its high-growth trajectory.
- Key growth driver: AI infrastructure adoption
- Revenue growth outpaces margin expansion
- Valuation multiple reflects high-growth expectations
Shares at $128 represent a compelling entry point for investors seeking exposure to cloud and AI trends.
2. Atlassian
Atlassian (TEAM) provides enterprise collaboration tools with a focus on product-driven growth. Its Jira and Confluence platforms serve over 300,000 customers, including expanding enterprise accounts. The company has integrated AI capabilities into premium subscriptions, with its Rovo agent automating workflows. Premium revenue growth reached 40% year-over-year, outpacing overall revenue growth of 22%. Operating margins expanded 5 percentage points to 24%, indicating improving efficiency.
- Product innovation drives premium revenue
- Operating leverage evident in margin expansion
- Price-to-sales multiple at 8.4x reflects growth potential
The $167 share price offers a discounted entry point relative to its operating leverage profile.
3. The Trade Desk
The Trade Desk (TTD) faces near-term challenges following operational hurdles in transitioning clients to its Kokai platform. Q2 results showed 19% revenue growth, but third-quarter guidance of 14% raised concerns. The company differentiates itself through multi-source ad placement and data aggregation, capturing digital ad spend growth. Despite short-term headwinds, its connected-TV advertising position remains strategic. The stock currently trades at 8.5x forward sales, presenting a potential opportunity.
- Operational transition impacts short-term guidance
- Long-term connected-TV ad growth potential
- Attractive valuation multiple amid market volatility
Shares at $54 may offer downside protection given its market position and growth prospects.
Investors should evaluate these stocks within broader portfolio contexts, considering risk profiles and market dynamics. The current valuations reflect growth expectations, but macroeconomic and industry-specific risks remain contingent upon execution and external factors. 📈
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2025-08-19 12:56