Sentiments about stocks can change sharply, especially over a five-year period. This is true of both the artificial intelligence (AI) industry and AI-driven stocks. As the technology has advanced, many AI stocks have fallen out of favor while others have moved to the forefront.
Looking forward five years, nobody knows for sure which AI stocks will emerge as the market leaders. Nonetheless, some stocks will likely remain major forces in the AI industry for years to come, and three Motley Fool analysts believe investors will likely reach 2029 feeling glad they bought these companies.
Poised to meet the world's need for more cybersecurity
Jake Lerch (CrowdStrike): My pick is CrowdStrike (CRWD -0.71%), a leading provider of cybersecurity solutions with a proven track record in the industry.
Part of why CrowdStrike is an excellent buy-and-hold candidate is the overall growth of the cybersecurity market. In short, cybercrime is everywhere, and organizations now face enormous risks if they fail to secure their digital assets. Casino operators have seen their slot machines hacked, healthcare providers have had their billing systems compromised, and pipeline operators have watched as their infrastructure has been shut down.
This presents a significant opportunity for companies like CrowdStrike, as the demand for cybersecurity solutions is poised to surge. Statista estimates that the worldwide cybersecurity market will expand to over $500 billion by 2030, up from around $300 billion in 2022, indicating a potential for substantial growth in the sector.
With the overall market growing, CrowdStrike is leveraging its competitive advantages within the sector. The company operates a subscription-based model, selling access to its Falcon platform and various cloud-based, AI-powered security modules designed to protect endpoints, networks, and data.
CrowdStrike is a one-stop shop, and it's clear that its customers like what it can offer. As CEO George Kurtz put it, "Customers favor our single platform approach. ... CrowdStrike is cybersecurity's consolidator of choice, innovator of choice, and platform of choice to stop breaches."
Consequently, CrowdStrike is delivering exceptional financial results. In its most recent quarter (the three months ended Jan. 31), CrowdStrike reported annual recurring revenue of $3.4 billion, up 34% from a year earlier. Moreover, CrowdStrike was profitable for the fourth straight quarter. This marks a significant milestone in the company's life cycle as regular profits have become the norm.
Finally, analysts expect CrowdStrike to grow revenue by 30% this year and 27% next year. In summary, CrowdStrike remains an up-and-coming company in a fast-growing sector. Growth-oriented investors should take notice; this stock looks set for a bright future.
Buy this SaaS stock on the heels of its fabulous quarter
Justin Pope (Monday.com): My pick is Monday.com (MNDY 0.67%), and it's pretty obvious once you consider all the fundamentals here. The business is firing on all cylinders, as evidenced by Q1 earnings that were so good that Wall Street sent the stock soaring roughly 20% higher on the news. What got investors so excited? It boils down to a company growing both customers and profits rapidly.
Monday.com is a SaaS business that sells cloud-based software on a subscription model. The product is simple -- it's a collaborative platform that helps company employees manage projects and collaborate on work tasks. The company refers to itself as a workplace "OS," short for operating system.
The idea is that a person or two begin using the software, and it spreads throughout a company as it becomes popular. That's why Monday.com has a stellar 114% net revenue retention rate for customers with at least 10 users. Moreover, customers spending at least $50,000 annually grew 48% year over year in Q1 to over 2,400.
Monday.com is doing this while putting up all-time highs in cash flow and non-GAAP earnings of $0.61 per share, blowing away analysts' estimates by $0.21. This company still sports a modest $11 billion market capitalization, which sets up investors for stellar returns if Monday.com eventually becomes a major player in the enterprise software space.
Monday.com is doing everything right, making the stock worthy of closer examination by long-term investors. Those looking five years out could have a gem on their hands today.
This AI pioneer is not going anywhere
Will Healy (Alphabet): Although it is amazing how fast investors have soured on the AI prospects of Alphabet (GOOGL 0.23%) (GOOG 0.23%) over the past year, my choice is the Google parent. Long dominant in search, it first integrated AI into its search tool in 2001. It has since applied AI to all of its applications and products, proclaiming itself an "AI first" company in 2016.
Nonetheless, the rise of OpenAI's ChatGPT appeared to catch Alphabet off guard. Its search tool faced its first meaningful competitive threat in years when Microsoft's Bing partnered with ChatGPT.
Moreover, when Alphabet responded with its generative AI product called Gemini, users gave it mixed reviews. Although it recently rolled out AI-native search to all users for the first time, investors seem more optimistic about the AI of other mega-techs such as Microsoft or Amazon.
However, despite missteps, counting Alphabet out is likely premature. Besides its extensive experience in the AI field, Alphabet invests heavily in research. Among the companies Alphabet owns, it combined subsidiaries to form Google DeepMind, which takes a multidisciplinary approach to developing AI applications.
Additionally, Google Cloud, which uses and supports AI applications, is one of its fastest-growing segments. In the first quarter of 2024, its revenue increased 28%, compared to 15% for the company overall. It has also emerged as the third-largest cloud provider.
Image source: Statista.
Furthermore, Alphabet has tremendous resources to back DeepMind and Google Cloud or to buy out other businesses. As of the end of Q1, the company claimed $108 billion in liquidity, an amount unmatched by almost all of its potential competitors.
Incredibly, its cash pile could continue to climb. In Q1 alone, Alphabet generated nearly $17 billion in free cash flow, and for all of 2023, that free cash flow came in at over $69 billion. This, along with its existing AI technologies, gives Alphabet tremendous optionality as it works to remain a leader in AI and related industries.
