What happened
Shares of some cloud stock, such as Snowflake (NIYEBE 4.06%) at MongoDB (MDB 3.11%), is shaken by the general turmoil of the stock market today and is showing respectable gains. Snowflake rose 3.3% and MongoDB rose 2.3%, compared to a 0.3% decrease for Nasdaq Compositestarting 12:40 pm ET on Wednesday.
There are other high-growth stocks like these two that also rose on a down day after the U.S. Bureau of Labor Statistics reported a 9.1% year-over-year increase in the Consumer Price Index (CPI). Energy and food costs are the main causes of inflation, and are starting to cause damage to households and businesses. What gives?
E what now
Several factors can lead to the growth of stocks with a positive return. The first has to do with the Federal Reserve, which is already hiking interest rates to try to fight inflation. Since CPI is still at levels not seen since the early 1980s, some investors are predicting that the Fed will make another aggressive rate hike when it is addressed in late July. Many market participants want the Fed to raise rates higher at a faster pace to end the disease, so that the market can begin to heal.
The second reason may be because high -growth stocks like Snowflake and MongoDB have already taken it to the chin from rising economic concerns. Higher interest rates lower the current value of risky assets such as stocks. As a result of the Fed’s actions and what were high valuations at the beginning of 2022, Snowflake’s stock dropped 56% this year, and MongoDB dropped 44%. After falling so far and factoring in higher rates, perhaps most of the pain is already in the rearview mirror for these stocks.
SNOW YCharts data.
What now
Inflation, interest rates, and besides the Fed, cloud-computing tools like Snowflake and MongoDB are still in high demand by businesses-and are likely to remain that way for many years to come. Bill McDermott, CEO of a fellow cloud software company Service Today (NOW -0.49%)on television this week to talk about steady cloud growth despite numerous macroeconomic headwinds.
Snowflake forecasts product revenue growth of 65% to 67% for this year, and MongoDB expects its sales to increase by approximately 35% this year. At this point, investors need to decide if they want to wait for high volatility as these two cloud leaders expand. If you’re not thinking about big price changes and there are years before you need the money, Snowflake and MongoDB are worth a look.
Nicholas Rossolillo and his clients have no position in any of the stocks mentioned. Motley Fool holds positions in and recommends MongoDB, ServiceNow, Inc., and Snowflake Inc. Motley Fool has a disclosure policy.