1 Super Stock Down 79% to Buy Hand Over Fist, According to Wall Street

Data streaming is a technology investors might want to learn more about, because it's powering more digital experiences each day. Businesses can use it to show live inventory information on their websites so people know if a product is available before they buy, and stock trading platforms can use it to feed live prices directly to investors' smartphones.

Confluent (NASDAQ: CFLT) is one of the world's top providers of data streaming technologies, and it values its addressable market at an eye-popping $100 billion. That figure could grow significantly over time, because data streaming is quickly becoming a critical piece of the artificial intelligence (AI) revolution.

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Confluent just reported its financial results for the first quarter of 2025 (ended March 31), and it beat expectations on the top and bottom lines. However, the company lowered its forward guidance due to the ongoing economic uncertainty triggered by simmering global trade tensions, which sent its stock sinking by 18%.

Confluent stock is now down 79% from its all-time high, which was set during the tech frenzy in 2021. It was unquestionably overvalued then, but it's now starting to look very attractive. Wall Street appears to agree -- The Wall Street Journal tracks 34 analysts who cover the stock, and the majority assigned it the highest possible buy rating, with none recommending to sell.

Image source: Getty Images.

Powering the data streaming revolution

If you wanted to listen to music at home 20 years ago, you needed to buy physical CDs and a CD player. Streaming platforms like Spotify changed that by storing music in centralized data centers and feeding it to their users via the internet or cellular networks on demand.

The data streaming revolution unfolded in a similar way. Businesses used to store their valuable information on physical servers and analyze it at a later date, but now they use centralized cloud data centers managed by tech giants like Amazon. Confluent's data streaming platform enables them to ingest that information, process it, and analyze it for valuable insights in real time.

Retail giant Walmart uses Confluent to connect its physical and online stores, so inventory data is instantly updated every time a product is sold at any location. This gives the company an opportunity to replenish its shelves before popular products sell out, but it also ensures customers know if a product is available before buying it online or heading to a particular store.

When it comes to AI, data streaming is critical for chatbot applications, which are constantly ingesting prompts and rendering responses in real time. Confluent's platform allows businesses to build data pipelines that they can plug into ready-made models from developers like OpenAI, so they can create custom AI software.

For example, the generic version of ChatGPT might be able to estimate the price an airline will charge to bring a surfboard onto a plane, but it can't tell you any specific information about your flight. However, an airline can use Confluent to create a data pipeline and plug it into an OpenAI model to launch a custom chatbot for its website, which customers can use to inquire about delays, or even change their flight.

Accelerating revenue growth, but cautious forward guidance

Confluent generated $260.9 million in subscription revenue during the first quarter of 2025, which was above the high end of management's guidance of $254 million. It represented a 26% increase from the year-ago period, which marked an acceleration from the 24% growth the company delivered three months earlier in the fourth quarter of 2024. The strong result was driven by strong customer acquisition, plus increased spending among existing customers.

Around 6,140 businesses were using Confluent at the end of the first quarter, and the highest-spending cohorts appeared to be growing the fastest. There were 1,412 customers spending at least $100,000 per year on Confluent's platform, which was up 12% year over year, and 210 customers spending at least $1 million, which was up 25%.

Confluent's net revenue retention rate was 117% in Q1, meaning that existing customers were spending 17% more money than they were a year ago.

The company also reduced its net loss by 27% during the quarter to $67.5 million on a GAAP (generally accepted accounting principles) basis, by moderating how quickly it increased its operating expenses. On a non-GAAP basis, which strips out one-off and non-cash expenses, Confluent was profitable to the tune of $28.9 million. That translated to $0.08 in earnings per share, which was above the high end of management's forecast of $0.07.

But here's the bad news: Confluent reduced the high end of its full-year revenue forecast from $1.12 billion to $1.11 billion, citing macroeconomic challenges. While it was only a minor reduction, it spooked investors because economic headwinds are outside of the company's control. In other words, it's hard to predict whether things will get worse over the next couple of quarters.

Wall Street is bullish on Confluent stock

The Wall Street Journal tracks 34 analysts who cover Confluent stock, and 20 of them assigned it the highest possible buy rating. Five others are in the overweight (bullish) camp, while eight recommend holding. One analyst has given the stock an underweight (bearish) rating, but none recommend outright selling.

Their average price target is $28.60, which implies a potential upside of 44% over the next 12 to 18 months. The Street-high target of $37 suggests that the stock might even soar by 87% instead. Those targets could come down later this year if Confluent's business suffers a slowdown on the back of economic headwinds, but investors have an opportunity to buy the stock at a relatively attractive valuation right now.

In 2021, Confluent's price-to-sales (P/S) ratio soared to around 60, which was completely unsustainable. But the 79% decline in the stock since then, combined with the company's consistent revenue growth, pushed its P/S ratio down to just 6.3. That's near the cheapest level in Confluent's history as a public company.

CFLT PS Ratio data by YCharts.

The short-term outlook might be uncertain for Confluent, but I would encourage investors to look a few years into the future. The company barely scratched the surface of its $100 billion addressable market based on its current revenue, and data streaming is only becoming more important for businesses in a variety of different industries. The proliferation of new technologies like AI might even drive the size of that opportunity much higher in the coming years.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Spotify Technology, and Walmart. The Motley Fool recommends Confluent. The Motley Fool has a disclosure policy.