The Smartest Growth Stock to Buy With $20 Right Now

Technology stocks are having a forgettable year so far, thanks to macroeconomic factors such as the tariff-fueled market turmoil, a contraction in the U.S. economy in the first quarter of the year, and the rising risk of a recession on account of the global trade war.

This explains why fast-growing companies have dropped substantially in 2025 despite reporting solid growth in recent quarters. Confluent (NASDAQ: CFLT) is one such stock that has dropped 30% this year, even though the cloud-based data streaming platform provider's growth has been impressive of late. Shares of the company received another blow following the release of its first-quarter results on April 30.

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Investors pressed the panic button, even though its numbers beat Wall Street expectations. The stock is now trading at just under $20 following its latest pullback. Let's see why that was the case, and why investors would do well to consider buying this growth stock hand over fist right now.

Image source: Getty Images.

Confluent's conservative guidance sent investors into panic mode

Though Confluent's Q1 revenue increased an impressive 26% year over year along with a robust 60% year-over-year increase in earnings, it was the guidance that played spoilsport. Confluent expects its second-quarter subscription revenue to grow at a relatively slower pace of 19% from the year-ago period. Earnings, on the other hand, are projected to jump nearly 42% year over year at the midpoint of its guidance range.

The full-year subscription revenue growth guidance of 19.5% also represents a slowdown in growth when compared to the 26% growth it recorded in 2024. Confluent management attributed this slowdown to macroeconomic uncertainties that could lead its customers to reduce spending on its solutions. CFO Rohan Sivaram remarked on the latest earnings conference call:

In light of the uncertainties in the current environment, we are widening our revenue guidance range and embedding a modest decline in growth rates from Q2 through Q4. For our cloud business, some of our larger customers began slowing the pace of new use case addition and focusing on cost optimization efforts in March.

He added that Confluent isn't expecting "a near-term rebound in consumption" on account of the macroeconomic uncertainties. All this explains why Confluent stock dropped more than 18% in a single day following the release of its results. However, investors shouldn't miss the forest for the trees. Confluent's huge addressable market and growing customer base point toward a bright future for the company.

The company is sitting on a massive end-market opportunity

Confluent's data streaming platform allows customers to store, access, analyze, and manage data in real time instead of storing it in silos. This allows Confluent customers to act upon their data in real time, as opposed to storing it first and then processing that data later on in batches. As a result, Confluent's cloud-based platform is finding application in multiple use cases ranging from fraud detection, stock trading, and marketing to cybersecurity and artificial intelligence (AI), among others.

Not surprisingly, the company sees its total addressable market (TAM) growing to $100 billion this year -- double compared to four years ago. Even better, Confluent is witnessing an improvement in its customer base, along with stronger customer spending, despite facing macroeconomic pressures. This is evident from the 20% year-over-year increase in Confluent's customer base last quarter to 6,140. That's a major improvement over the year-ago period, when the company's customer base increased at a much slower pace of 9%.

Apart from adding new customers, Confluent is also winning more business from existing ones. This is evident from the dollar-based net retention rate of 117% in Q1. The company measures this metric by calculating the annual recurring revenue (ARR) of its customers at the end of a period to the ARR from the same customer cohort in the year-ago period. So, a reading of more than 100% in this metric means that the same customer cohort has decided to extend the usage of Confluent's offerings or is buying more solutions from the company.

Confluent's massive TAM suggests that it could continue attracting more customers and gain additional business from its existing customers in the long run. This is probably why analysts are expecting an acceleration in the company's earnings growth. Analysts are projecting a 24% increase in Confluent's bottom line in 2025 to $0.35 per share. The following chart points toward a much stronger level of earnings growth for the next couple of years.

CFLT EPS Estimates for Current Fiscal Year data by YCharts.

What's more, Confluent stock is undervalued when we take its earnings growth potential into account. The stock has a price/earnings-to-growth ratio (PEG ratio) of just 0.44, based on the annual earnings growth it's expected to clock for the next five years, according to Yahoo! Finance. A PEG ratio of less than 1 suggests that a stock is undervalued, and Confluent is well below that threshold.

So, if you have $20 with you to put into a growth stock, Confluent looks like the ideal long-term candidate based on the points discussed above.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool recommends Confluent. The Motley Fool has a disclosure policy.