While the segment presents obvious risks, investors seeking to maximize their upside potential should consider targeting the best tech startups to watch. Aligned with some of the most innovative and relevant businesses, these attractive securities may have been beaten down because of consumer economy pressures last year. However, patient investors may be able to accrue substantial rewards.
To be sure, market participants must be cognizant of the volatility inherent in relatively unproven enterprises, even those billed as the most promising tech startups to watch. Usually, massive upside opportunities in the equities sector exchange predictability for potential. In a way, you’re navigating uncharted waters here.
To clarify the below list, I’ll be focusing on former startups that launched an initial public offering within the past three years. The reason for this is simple: if I mentioned “pure” startups, you probably wouldn’t be able to buy their equities conveniently. So, if you’re ready, these are the top tech startups to watch.
Based in Mountain View, California, SentinelOne (NYSE:S) specializes in cybersecurity. Specifically, it leverages machine learning for monitoring personal computers, devices tied to the Internet of Things, and cloud workloads. Powerfully relevant, S stock gained nearly 23% of equity value since the start of the year. While it’s one of the more exciting tech startups to watch, it also fell almost 47% in the trailing year.
Fundamentally, I’m not deterred. Really, the data indicates that SentinelOne should rank among the most promising tech startups. According to industry sources, the latest data on cyberattack trends shows a 38% increase in global attacks last year compared to 2021. Therefore, someone must protect computers and networks from an ever-rising threat profile. Financially, SentinelOne benefits from a stout balance sheet. In particular, its cash-to-debt ratio stands at 23.12, above 72.79% of software companies.
Lastly, covering analysts peg S as a consensus moderate buy. Their average price target comes out to $19.74, implying over 10% upside potential.
A cloud-based software company, Braze (NASDAQ:BRZE) is a customer engagement platform used by businesses for multichannel marketing. Some of the popular brands that Braze serves include HBO Max, Burger King, and NASCAR. Since the start of this year, BRZE gained an impressive 28% in equity value. However, in the past 365 days, it slipped nearly 23%. Still, it could be one of the best tech startups to watch.
As society normalizes from the unprecedented disruption of the Covid-19 crisis, customer engagement platforms may see greater demand. True, the consumer economy also suffers from pressures such as stubbornly high inflation. At the same time, competition will become fierce for any available consumer dollars. Financially, Braze’s greatest strengths may lie in balance sheet stability. Currently, its cash-to-debt ratio stands at 9.33, above 64.36% of companies listed in the software industry.
Finally, Wall Street analysts peg BRZE as a consensus strong buy. Their average price target lands at $39.83, implying nearly 21% upside potential.
Also headquartered in Mountain View, California, Confluent (NASDAQ:CFLT) is a data platform, that enables easier connection to apps, systems, and organizational networks with real-time data flows and processing. One of the more attractive names among top tech startups that recently launched an IPO, CFLT gained nearly 11% of market value since the start of the year. However, since its 2021 debut, shares plunged 49%.
As an aspirational firm, Confluent only features middling strengths in its balance sheet. Also, it’s not a profitable enterprise. Both its trailing-year operating and net margins sit deeply in negative territory. On the flip side, Confluent’s three-year revenue growth rate pings at 46.3%, above 92.5% of companies listed in the software space. Notably, in its fourth quarter of 2022 earnings report, Confluent posted sales of $168.7 million, up almost 41% on a year-over-year basis.
To close out, analysts peg CLFT as a consensus strong buy. Their average price target stands at $29.47, implying nearly 25% upside potential.
Based in Boston, Massachusetts, Toast (NYSE:TOST) is a cloud-based management software company. Per its public profile, it provides an all-in-one point-of-sale system built on the Android operating system. Since the start of the year, shares gained a very modest 1.3%. Although intriguing, TOST slipped almost 8% in the past 365 days. Since its IPO in Sept. 2021, shares plunged 68%.
On the surface, then, TOST does not appear to be one of the best tech startups to watch. However, with more people going out and about as fears of Covid-19 fade away – the so-called revenge travel phenomenon – Toast could become very relevant, very quickly. Another factor to consider is its financials. Although Toast doesn’t offer the greatest print, it benefits from a stable balance sheet. Specifically, its cash-to-debt ratio pings at 10.86 times. In contrast, the software sector median value is only 2.81 times.
Turning to Wall Street, analysts peg TOST as a consensus moderate buy. Their average price target hits $22.92, implying 29% upside potential.
Calling San Francisco, California home, Amplitude (NASDAQ:AMPL) develops digital analytics software. According to its website, powerful brands like HBO utilize its software. Also, Amplitude courts renowned blue chips like Walmart (NYSE:WMT), PayPal (NASDAQ:PYPL), and Intuit (NASDAQ:INTU) as its enterprise-level clients. Still, it trades at a relative value for contrarians. In the past 365 days, it’s down more than 39%.
That’s a shame because AMPL certainly commands potential as one of the promising tech startups to watch. To be fair, Amplitude still carries an aspirational profile, with operating and net margins stuck in negative territory. On the other hand, its gross margin pings at an impressive 70.41%. Also, Amplitude enjoys a robust cash-to-debt ratio of 20.78 times. Notably, its Altman Z-Score hits 6.39, indicating high fiscal stability and low bankruptcy risk.
Looking to the Street, analysts peg AMPL as a consensus moderate buy. Their average price target stands at $16.63, implying nearly 37% upside potential.
Arguably offering one of the best opportunities among top tech startups to watch, GitLab (NASDAQ:GTLB) is an open-core company. Specifically, it operates a DevOps software package that can develop, secure and operate the software. The term DevOps represents a combination of development and operations, symbolizing a collaborative or shared approach to IT-related tasks.
According to Grand View Research, the global DevOps market size reached a value of $11.3 billion in 2022. Experts project that the sector will expand at a compound annual growth rate (CAGR) of 16.8% from 2023 to 2030. By the end of the forecasted period, sector revenue should ring up to $37.25 billion. Therefore, GitLab benefits from a large total addressable market. Financially, GTLB might not deserve the red ink that it incurred. Since its October 2021 IPO, shares fell nearly 72%. However, the company itself features an extremely healthy cash balance relative to debt.
Also, covering analysts peg GTLB as a consensus strong buy. Their average price target stands at $48.38, implying almost 40% upside potential.
Last but not least on this list of tech startups to watch, San Francisco-based Udemy (NASDAQ:UDMY) represents an educational technology (ed-tech) specialist. Offering over 213,000 online video courses with new additions posted monthly, Udemy symbolizes a treasure trove of information. From the Python programming language to machine learning protocols to graphic design, students can learn myriad relevant skills.
Unfortunately, the market doesn’t see the inherent value in the opportunity. Since the beginning of the year, UDMY slipped over 20%. Since its October 2021 public market debut, shares fell 69%. However, as mass layoffs impact multiple industries, people may look toward improving their skills. Theoretically, then, UDMY may rise higher.
As with other aspirational ideas, Udemy suffers from negative margins. On the positive side, the company enjoys a cash-rich balance sheet and strong revenue growth. On a final note, analysts peg UDMY as a consensus moderate buy. Their average price target stands at $15.67, implying over 84% upside potential.
On the date of publication, Josh Enomoto did not have (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.