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1. The case for DigitalOcean

DigitalOcean ( DOCN 3.44% ) is in the cloud computing business, an industry dominated by tech royalty, including Microsoft, with its Azure platform, and Amazon, with Amazon Web Services (AWS). But DigitalOcean's advantage is actually its smaller size, as it serves areas of the market that might be too niche for its behemoth competitors.

The company's focus is on simplicity. It's designed for small-scale applications run by users who might be less development savvy than the average AWS or Azure client (think start-ups, for example). Therefore, it places a heavy focus on competing on price and can be up to 56% cheaper than AWS, depending on product configuration. From a bandwidth perspective, pricing is as low as $0.01 per gigabyte, the cheapest in the industry.

For DigitalOcean's stock price to grow 400% by 2030, it would need to increase its revenue by 22.5% per year on a compounding basis -- assuming its current price-to-sales ratio remained constant. Since 2018, it has handily exceeded the mark.

Metric

2018

2021 (Estimate)

CAGR

Revenue

$203.1 million

$427 million

28%

Data source: DigitalOcean, Yahoo! Finance. CAGR = compound annual growth rate.

Despite the strong performance over the past three years, revenue growth is expected to accelerate in 2022, based on early estimates by Wall Street analysts. DigitalOcean could deliver $562 million, which would represent an almost 32% increase compared with 2021.

And since the company is already profitable, it runs a much smaller risk of disruptions like dilutive capital raises going forward. Plus, the cloud computing industry is slated to far exceed $1 trillion in size by 2030, so DigitalOcean has a major revenue and earnings opportunity ahead of it.

Two students sitting at a table studying, with flags in the background.

Image source: Getty Images.

2. The case for Duolingo

Duolingo ( DUOL 5.30% ) is one of the world's leading language education providers. The company's success is derived from its smartphone-based approach, where it makes an interactive game out of its lessons.

The Duolingo app is currently the highest-grossing app in the entire education category in Alphabet's Google Play store, and it's the second-highest in Apple's App Store.

Despite already being downloaded 500 million times globally, Duolingo still has an enormous runway for growth. The company estimates there are up to 1.8 billion people learning a language worldwide at the moment, and the market for digital language learning could be worth up to $47 billion annually by 2025 -- with growth that's twice as fast as offline language learning methods.

And since the company started ramping up monetization in 2019 through subscriptions and in-app purchases, it's growing revenue at a rate that blows away the 22.5% it needs for its stock to grow fivefold by 2030.

Metric

2019

2021 (Estimate)

CAGR

Revenue

$70.7 million

$245.5 million

86%

Data source: Duolingo.

The percentage of its monthly active users who are converting into paid subscribers is also growing rapidly. In 2019, 3% of monthly active users were paying, which grew to 4% in 2020, and it was over 5.2% in the third quarter of 2021.

Yet the most significant growth for Duolingo might be ahead of it. The company is paying particular focus to developing nations like India, where the app grew by 400% in 2020. By 2022, the company estimates 500 million people in India will have accessed the internet for the very first time, which materially increases Duolingo's addressable market.

This is a company in the very early stages of a promising growth phase, and it's a great bet to grow by multiples from here for investors with a long-term focus.