Buy Splunk Stock Now For the Inevitable Growth of Big Data

Splunk (NASDAQ:SPLK) was trading in a tight range for most of the year, but has seen a breakout recently. The question is will it power higher after earnings?  The software provider is expected to deliver negative earnings per share (EPS) of 34 cents on revenue of $520.8 million. However, over the past two years, Splunk has had a pleasant habit of beating top line and bottom-line expectations.

While there’s no doubt that earnings are important, I believe investors need to view Splunk through a much wider lens. Splunk is a pure play among companies that analyze big data. That’s an area that’s expected to grow exponentially, which is why I like SPLK stock

Actually Splunk stock gives technology enthusiasts a great investment on two of the hottest trends in tech. It’s not only a play on Big Data. It’s also an investment in artificial intelligence. Put the two together and you get the essence of what Splunk is all about. The company provides software solutions that use artificial intelligence to record and analyze Big Data.  

How Big is Splunk’s Opportunity?

The phrase information is power is, perhaps, overused. But it’s essential to understanding Splunk’s business. As computers became more powerful, companies put them to use collecting volumes of data on their customers, their manufacturing process, supply chains. Basically if you could measure it, they wanted data on it.

In 2018, the global Big Data and Business Analytics Market were valued at $171.39 billion. By 2026, that market is expected to grow at a compound annual growth rate (CAGR) of 14.8% through 2026. That would put its value at $512.04.

But gathering data is not the same as knowing what to do with it. What information is really important? That’s where Splunk comes in. The companies software uses artificial intelligence to comb through data and look for connections that provide insights to businesses as wide ranging as Domino’s Pizza (NYSE:DPZ) and Porsche (OTCMKTS:POAHY).

But the story gets better. The stock’s climb since the novel coronavirus set in has been triggered by a new partnership with Alphabet (NASDAQ:GOOGL). Splunk will provide analytics functions for Google Cloud.

On the call to discuss the company’s May earnings, chief executive officer (CEO) Doug Merritt made this observation, “COVID-19 has transformed the world into one that requires rapidly accelerated digital transformation to keep organizations moving – we are seeing some resilient customers complete three-to-five year projects in just months. As customers continue to adapt to this new normal, data matters more than ever, evidenced by our continued strong momentum this quarter.”

And, for as massive of an opportunity that there is, Splunk has few competitors to speak of. A notable exception is Alteryx Inc (NYSE: AYX). This gives SPLK stock a long runway for continued growth.

The Coronavirus Recovery Continues

Like all stocks, SPLK stock was not immune to the effects of the novel coronavirus. But Splunk hasn’t been an easy stock for investors to love. However, since the beginning of 2019, investors had been treated to smooth, if not always steady, growth. When the nationwide shutdowns over Covid-19 occurred, Splunk was knocking on the psychologically significant $200 price range.

Splunk stock briefly fell under $100, but almost immediately started to charge higher. A brief selloff in April pushed the stock back near the $100. However, the stock caught its breath before its May earnings report and has been charging ahead. Now the question is if SPLK stock can stay above the $200 mark.  And if so, how high can it go?

Is Splunk Stock Too Good to Be True?

Yes and no. Undoubtedly, the company is changing as fast as the sector that it dominates. However, for all of the company’s growth, Splunk isn’t a profitable company…yet. And with a stock that’s risen over 100% since March, it might be natural if you’re a current Splunk investors to start pulling money off the table.

But, don’t do that yet. Wait to see where the stock goes after earnings. If the company beats expectations the company may bring $210 or higher into play. There’s nothing wrong with setting a price target for yourself and selling when it reaches that point.