As we roll into a new year, investors are taking stock of the market's performance, and there's much to be thankful for. The Nasdaq Composite(NASDAQINDEX: ^IXIC) led the major indexes higher last year, rising 29% after gaining 43% in 2023. Despite fears to the contrary, history suggests the market could continue to climb higher in 2025.
The Nasdaq first began trading in 1972, and in the 13 years following gains of 29% or more, the Nasdaq has been positive on 11 occasions, and in all has generated additional returns of 19%, on average. The results vary widely, of course, but chances are good that the tech-centric index will continue to rally over the coming year.
If the Nasdaq does continue to soar in 2025, you'll want to own these two tech stocks before it does.
Image source: Getty Images.
PayPal: Like a phoenix from the ashes
PayPal (NASDAQ: PYPL) once ruled the world of digital payments, an industry it pioneered. However, the company has fallen on hard times. After growing strongly during the pandemic, PayPal was faced with tough comps and slowing sales, exacerbated by economic headwinds.
The company is still in recovery mode, and its recent results provide context. In the third quarter, PayPal generated revenue that grew 6% year over year to $7.8 billion, driving adjusted earnings per share (EPS) up 22% to $1.20. The financial results were fueled by total payment volume that increased 9%, while the number of payment transactions also increased 9%.
Despite its seemingly tepid growth, PayPal appears to have turned the corner. The company's active accounts increased by 3 million sequentially, while transactions per active account jumped 9%.
There's more good news: While transaction growth from PayPal's branded checkout -- the PayPal payment button on websites -- has slowed, the company has taken steps to branch out. PayPal Everywhere -- which includes a branded debit card and a more attractive rewards program -- is bearing fruit.
Then there's Fastlane, PayPal's guest checkout tool for digital retailers, which is also seeing rapid adoption and increasing conversions (sales) for online merchants. Furthermore, CFO Jamie Miller said he expects transaction margin to continue to expand in 2025. These initiatives are helping the company increase growth, reflected in its stock price, which is up 44% over the past year (as of this writing).
CEO Alex Chriss recently reminded investors that PayPal remains "the largest, best converting, and [has the] most share of branded checkout anywhere in the world." The company continues to grow faster than most of its rivals and is leveraging its position with strategic partnerships with other fintech companies, including Adyen and Fiserv, helping expand its reach even further.
Wall Street is increasingly bullish on PayPal. Of the 46 analysts who offered an opinion thus far in January, 26 rate the stock a buy or strong buy, and none recommend selling. The stock has an average price target of $94, which represents potential gains for investors of 7%. However, JMP Securities believes investors are underestimating PayPal's potential, assigning a price target of $125 that represents potential upside of 42% (as of this writing).
Finally, the stock is selling for just 21 times earnings (as of this writing), a significant discount to its historical average of 45, and well below a multiple of 30 for the S&P 500(SNPINDEX: ^GSPC). Despite recent challenges, PayPal has made all the right moves to right the ship, which will ultimately benefit the company -- and its shareholders.
Shopify: Back from the brink
Much like PayPal, Shopify(NYSE: SHOP) enjoyed a surge of activity during the pandemic, only to face a rapid decline in digital retail and tough comps, followed by the worst economic downturn in decades. However, the rebounding economy is freeing up disposable income, and as a provider of software and services to digital retailers, Shopify has enjoyed a resurgence in its business.
In the third quarter, revenue grew 26% year over year to $2.16 billion, driving operating income of $283 million, up 132%. At the same time, Shopify's free cash flow margin grew to 19%, up from 16% in the prior-year quarter. The results were fueled by monthly recurring revenue that jumped 28% and gross merchandise volume that climbed 24%.
Management expects the company's growth spurt to continue, and is guiding for revenue growth from the mid-to-high-20s in the fourth quarter.
It's the utility of its tools that keeps merchants coming back for more, and Shopify's track record of innovation continues. The company is leaning into Shopify Flow, a no-code building block app that helps merchants create customized automation tools to streamline tasks.
For example, within Shopify Inbox, the platform uses artificial intelligence (AI) to suggest replies to customer inquiries. Responding quickly can boost conversion rates and increase sales. Merchants have been using these suggested responses for about half the time, which helps illustrate just how effective the tool is.
Shopify Flow also helps manage customer loyalty programs and inventory management, automates tax calculations, flags high-risk orders for fraud prevention, and reviews orders for immediate fulfillment or review. These tools help merchants be more productive, which frees them up to spend more time managing their business.
These moves have not only helped merchants, but also boosted Shopify's stock price, which is up 32% over the past year (as of this writing).
In early December, Shopify reported the results of its Black Friday-to-Cyber Monday week, and the numbers were encouraging. Shopify merchants achieved a record $11.5 billion in sales during the four-day period, an increase of 24% year over year.
There were a number of other more telling metrics:
More than 76 million customers worldwide bought items from Shopify-powered merchants.
More than 16,500 entrepreneurs made their first-ever sales using the Shopify platform.
More than 67,000 merchants reported their highest-ever selling day on Shopify.
The company noted a 58% year-over-year increase in sales made using Shop Pay, which gives the company a cut of each transaction.
Wall Street is fairly bullish on Shopify. Of the 52 analysts who offered an opinion so far in January, 31 rate the stock a buy or strong buy, and none recommend selling. The stock has an average price target of $119, which represents potential gains for investors of 12% (as of this writing). However, Loop Capital analyst Anthony Chukumba maintains a price target of $140, representing additional upside potential of 31%, as of this writing.
Shopify is currently selling for 17 times sales, and while that might seem high, it's well below the stock's five-year average multiple of 26, so it's historically cheap.
Despite a challenging environment, Shopify continued to build on its foundation and has positioned itself for the inevitable economic recovery that is ongoing.
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Danny Vena has positions in PayPal and Shopify. The Motley Fool has positions in and recommends Adyen, PayPal, and Shopify. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short March 2025 $85 calls on PayPal. The Motley Fool has a disclosure policy.
