There are few companies these days of any meaningful size consistently putting up the growth numbers of Splunk (SPLK), a provider of software applications used by organizations to monitor and analyze machine-generated data.

The company’s solutions keep track of all processor-based systems (everything from handsets and GPS devices to HVAC controllers and smart meters), which continuously generate machine data, both structured (able to fit neatly into traditional databases) and unstructured.

The increasing complexity of IT infrastructures—driven by the adoption of cloud-based services, virtualization and mobile technologies—has accelerated the growth of machine data. It’s estimated that 90% of data growth over the next few years will occur within the unstructured category, with much of it machine data.

Splunk’s platform enables organizations to gain operational intelligence by sorting through all of this data. The software collects and indexes information at massive scale, regardless of the format or source. Customers are able to quickly and easily search, correlate, analyze and report on the data in real time. For example, railroads use Splunk to monitor and improve the efficiency of train routes, while commercial building owners deploy Splunk to make sure electrical systems, security systems and elevators operate optimally.

I am adding Splunk to the Next Wave Portfolio because its solutions are increasingly being deployed across a variety of use cases— including traditional business intelligence (BI) functions—putting the company on a solid path to eventually reach $1 billion in annual revenue.

Revenue for fiscal Q4 (ended January) of $147.4 million advanced 48%, easy beating the consensus estimate of $137 million. What makes this growth even more impressive: 45% of license bookings were of the ratable variety, as the company has been generating more business on a subscription basis. In a subscription sale, revenue is generated over the life of the contract (usually 12 to 24 months) instead of all up front. Deferred revenue in FQ4 expanded 58% to $304.1 million, while cash flow from operations of $51.5 million rose 49% year over year and 112% sequentially.

With Splunk solutions now being put to work in a wider array of use cases, sales reps are having an easier time selling the company’s story, resulting in record new customer wins. In FQ4, Splunk added more than 600 new accounts (roughly 2,000 were brought on in FY’15), bringing the total to more than 9,000 customers. This broader customer footprint is good news because 70% of license bookings in any given quarter come from the installed base. License revenue in the January quarter totaled $98.1 million, up 43% (acceleration from 41% growth in FQ3).

Splunk is seeing a healthy tailwind from a ramp in the number of large deals. In FQ4, the company closed 429 transactions worth more than $100,000 each, a gain of 48% from the year-ago quarter. A record 39 deals totaled $1 million+, up 86%.

It helps that Splunk, in addition to building out its sales force across various geographies, is putting together specialist teams to tackle important verticals. An industry-expert salesperson knows all of the requirements of targeted accounts and deploys specific strategies to get deals (especially larger ones) closed.

Security has become one of the main use cases for Splunk solutions, representing 35% to 40% of FQ4 revenue, vs. roughly 20% three years ago. On the FQ4 earnings conference call, Splunk CEO Godfrey Sullivan said the company’s security unit was “on fire.” Splunk’s success in security comes from its focus on Big Data analytics; its solutions look for patterns, trends and disruptions in machine data, with the goal to detect anything unusual or nefarious.

More enterprises are starting to view Splunk’s solutions as the security “nerve center or brain,” according to Sullivan. With security as a new focus, customer orders for Splunk solutions have been expanding to include the entire enterprise, vs. primarily departmental sales in the past.

It was telling that Haiyan Song, VP of security, was given major airtime on the latest earnings call to discuss the unit. Security demand is accelerating and Splunk wants to grab its share. Before joining Splunk in February 2014, Song spent nine years at ArcSight (now owned by Hewlett-Packard) as VP/general manager, responsible for driving product strategies and overall execution.

Splunk Cloud (offering all of the features of Splunk Enterprise delivered as a service) continues to gain traction. After closing several large cloud deals in FQ3 (one being a seven-figure deal, the largest in the quarter), Splunk in FQ4 closed more six- and seven-figure transactions for its cloud offering. The number of cloud customers in the latest quarter jumped 90% sequentially. Marc Olesen, a software expert with more than 20 years of experience (including stints at McAfee and Mercury Interactive), runs the cloud unit.

Overall in FQ4, Splunk supplied a lot of positive metrics, including gross margin staying steady at a robust 90%; billings growth coming in at 47%; and per-share earnings of nine cents topping the consensus by five cents. The company’s average selling price is now in the range of $40,000 to $50,000, up from $30,000 to $40,000 in FY’14; a software company with strong pricing power is a rare breed.

For fiscal 2016 (ending January), Splunk expects revenue of $600 million (growth of 33%); this is up from the company’s initial guidance of $575 million offered in November. Analysts on average are even more bullish on Splunk’s prospects: the consensus revenue estimate for the current fiscal year is $603.3 million, with the Street-high estimate at $620 million. For fiscal 2017, the consensus revenue estimate is $788.2 million.

The one caution flag with Splunk is the high valuation, which makes the stock extremely volatile. At a recent price of $62.41, Splunk shares have a market cap of $7.8 billion, 12.9 times forward revenue. Splunk is expensive because the company is positioned within a few tech megatrends (meaning lots of budgets to pull from): Big Data, the cloud, security and analytics. Investors have been willing to pay up for key players in these long-term growth areas. But that doesn’t mean Splunk shares are immune to sharp short-term corrections.

Splunk is a ‘Buy’ in the Next Wave Portfolio up to $67.