Growth stocks represent shares of companies that are still in their development stages. Many of these businesses belong to fast-moving sectors, offering significant room to expand and evolve.
HubSpot (HUBS) and Microsoft (MSFT) are two such growth stocks that Wall Street has assigned a “Strong Buy” rating. Both companies have integrated artificial intelligence (AI) within their platforms, enhancing user experience and efficiency, which has fueled remarkable growth. Let’s explore whether now is the right time to invest in them.
Growth Stock #1: HubSpot
Founded in 2006, HubSpot (HUBS) is a marketing software company that provides solutions for marketing, sales, customer service, and content management. Catering primarily to small and medium-sized businesses (SMBs), HubSpot has built a strong presence in the software-as-a-service (SaaS) industry with its user-friendly tools and innovative strategies. Although HubSpot is a smaller player in the customer relationship management (CRM) space compared to Salesforce (CRM), its performance remains noteworthy. Last year, HUBS stock rose 27.1%, trailing Salesforce’s 30.5% gain but outpacing the broader market’s 24% increase.
HubSpot’s subscription-based model ensures predictable revenue streams, while its cloud-based platform enables SMBs to seamlessly manage their marketing, sales, and customer service operations. In the third quarter, the company grew its customer base to 238,138, reflecting a 23% increase and showcasing its ability to attract SMBs on a global scale. It continues to enhance its platform by introducing new tools and features. In Q3, the company rolled out approximately 200 innovations, including AI-powered marketing analytics and advanced CRM capabilities.
HubSpot reported total revenue of $669.7 million in Q3, a 20% year-over-year increase, driven by a 20% rise in subscription revenue and a 28% growth in professional services and other revenue streams. The company's focus on SMBs — a market segment often overlooked by larger CRM providers like Salesforce — has proven to be a successful strategy. Its platform’s simplicity and affordability make it a compelling choice for smaller businesses.
Between 2018 and 2022, HubSpot achieved a compound annual revenue growth rate of 27.5%, although profitability remained a challenge during that period. However, the past two years have seen significant improvements. In Q3, adjusted net income rose 34.5% to $2.18 per share. HubSpot demonstrated strong cash generation in Q3, with free cash flow reaching $129.2 million. Its financial position remains solid, with $2.1 billion in cash, cash equivalents, and investments as of the quarter’s end.
Recently, it acquired Frame AI, an AI-driven conversation intelligence platform, which will be integrated into its own AI platform, Breeze. This integration aims to enhance the company’s ability to unify structured and unstructured data across the customer journey at scale, enabling go-to-market teams to turn conversations into actionable insights. Financial terms of the acquisition were not disclosed.
For the full year, management anticipates revenue between $2.597 billion and $2.599 billion, with adjusted earnings per share ranging from $7.98 to $8.00 — both aligning with consensus estimates. This outlook represents a 19.6% increase in revenue and a 35% growth in earnings compared to 2023. Analysts also project revenue and earnings growth of 15.7% and 14.3%, respectively, in 2025. However, with HubSpot trading at 76 times its projected 2025 earnings, the stock appears overvalued.
HubSpot’s investments in AI and automation are expected to enhance efficiency and deliver greater value to its customers. Coupled with strong financial performance, an innovative platform, and a strategic focus on SMBs, the company is well-positioned in the expanding CRM and marketing software markets. Although HubSpot’s long-term growth prospects are appealing, investors may consider waiting for a more favorable entry point.
Wall Street analysts maintain an optimistic view of HubSpot, assigning a consensus “Strong Buy” rating. Of the 28 analysts covering the stock, 20 rate it a “Strong Buy,” three a “Moderate Buy,” and five a “Hold.” The stock’s average target price of $760 suggests 7.6% upside from current levels, while the highest target price of $880 implies potential upside of approximately 25%.
Growth Stock #2: Microsoft
Microsoft (MSFT), valued at $3.2 trillion, stands as one of the most influential technology companies globally, with a diversified portfolio of products and services spanning software, cloud computing, AI, gaming, and more. Its flagship products, such as Windows, Office, and Azure, have become integral to personal and enterprise computing worldwide.
Microsoft’s stock has delivered exceptional returns of around 961.9% to shareholders over the past decade, outperforming major market indices. Its ability to sustain double-digit revenue growth and strong profit margins fuels investors’ confidence.
Last year, the stock gained 13.6%, compared to the tech-heavy Nasdaq Composite Index’s ($NASX) gain of 30.7%.
Microsoft Azure continues to be the company’s standout asset, driving substantial revenue and growth. As the world’s second-largest cloud provider, behind Amazon’s (AMZN) AWS, Azure has capitalized on the increasing enterprise adoption of cloud solutions. In the first quarter of fiscal 2025, the cloud segment’s revenue rose 22% year-over-year to $38.9 billion. Additionally, Microsoft’s strategic investments in AI, particularly its partnership with OpenAI, have solidified its leadership in the field. The integration of AI capabilities into Azure, Office 365, and Dynamics 365 has significantly improved the performance and appeal of these products.
Total revenue increased 16% year over year to $65.6 billion in its fiscal first quarter, and adjusted earnings rose 10% year over year to $3.30 per share, surpassing consensus estimates. The company distributed $5.6 billion in dividends and repurchase $4.1 billion worth of shares. Although Microsoft’s forward dividend yield of 0.77% is below the tech sector average of 1.37%, the company has consistently increased its dividend for 23 consecutive years. This quarter, it raised the dividend by 10% to $0.83 per share. Additionally, Microsoft announced a new $60 billion share repurchase program.
Microsoft is set to report its second-quarter fiscal 2025 results on Jan. 29, after the market closes. Analysts forecast revenue growth of 10.9% and earnings growth of 6.8% for the quarter. For fiscal 2025, analysts forecast earnings to rise by 10.5%, with an additional 15.1% increase expected in fiscal 2026. While Microsoft trades at 28 times its forward 2025 earnings, slightly on the expensive side, its leadership in cloud computing, AI, and productivity software, along with shareholder-friendly policies, makes the premium valuation justifiable.
It’s no surprise Microsoft holds a “Strong Buy” rating on Wall Street. Among the 42 analysts covering the stock, 35 rate it as a “Strong Buy,” three as a “Moderate Buy,” and three as a “Hold.” The average price target of $510.23 indicates 19% upside from current levels, while the highest target of $600 suggests a potential 39.8% rally over the next 12 months.
