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2 Monster Growth Stocks in the Making

By Trevor Jennewine – Oct 8, 2021 at 7:00AM

Key Points

  • Artificial intelligence will create $30 trillion in value by 2037.
  • CrowdStrike has become the gold standard in endpoint security.
  • Riskified helps merchants prevent fraud and boost acceptance at checkout.

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These AI-powered growth stocks could supercharge your portfolio.

Whether you realize it or not, you probably interact with artificial intelligence (AI) on a daily basis. This includes search engines, social media sites, and product recommendation systems, as well as the smart speakers in your home and the personal assistant on your smartphone. But AI is also being used in other products, like cybersecurity and fintech platforms, demonstrating its ability to reshape the world across industries.

Why does that matter? According to Ark Invest, by 2037, AI will add $30 trillion to the global equity market cap. In other words, this technology puts shareholders in front of a massive opportunity. With that in mind, both CrowdStrike Holdings (CRWD 5.46%) and Riskified (RSKD -0.39%) look like monster growth stocks in the making. Here's why.

Group of investors crowded around a computer.

Image source: Getty Images.

1. CrowdStrike

CrowdStrike specializes in endpoint and workload protection. Its Falcon platform is designed to secure devices and applications in any environment, from private data centers to the public cloud. To do this, CrowdStrike crowdsources data from millions of endpoints (e.g. desktops, servers), then leans on artificial intelligence to block even the most sophisticated attacks. More importantly, CrowdStrike's scale means it collects more data than any of its rivals, which makes its AI models uniquely effective in detecting and preventing threats.

For that reason, CrowdStrike has become the gold standard in many sub-sectors of the cybersecurity industry. For instance, the International Data Corp. recently recognized Falcon Complete as the best-managed detection and response product on the market, citing greater capabilities and a stronger growth strategy than any other solution. With Falcon Complete, the company provides cybersecurity as a service, deploying a team of professional threat hunters that deliver round-the-clock protection to clients. This solution is especially valuable for companies that don't have the time or resources to manage their own security and CrowdStrike backs the product with a $1 million breach warranty, showing management's confidence in the platform.

Not surprisingly, this has translated into strong demand. During the Q2 earnings call, CEO George Kurtz said the company has seen an increase in the Falcon Complete customer base of nearly 2.5 times year-over-year in the recent quarters. CrowdStrike's business continues to fire on all cylinders, and the company's financial performance has been impressive over the past year.

Metric

Q2 2021 (TTM)

Q2 2022 (TTM)

Change

Revenue

$654.3 million

$1.1 billion

74%

Free cash flow

$177.1 million

$364.3 million

106%

Source: YCharts. TTM = trailing-12-months. CAGR = compound annual growth rate. Note: Q2 2022 ended July 31, 2021.

Looking ahead, management puts its market opportunity at $106 billion by 2025, leaving the company with plenty of room to grow. And while CrowdStrike now has over 13,000 customers, up 81% from the prior year, some legacy cybersecurity providers have over 100,000 customers. From that perspective, this company could grow several times over in the years ahead. That's why CrowdStrike looks like a monster stock in the making.

2. Riskified

Fraud is a costly problem in the e-commerce industry. Merchants often decline valid transactions or accept fraudulent ones, resulting in missed sales or increased operating expenses related to chargebacks (i.e. the reversal of debit or credit card payments). Collectively, these issues can impact a seller's bottom line in a big way.

Riskified aims to solve this problem. Its platform leans on artificial intelligence to prevent fraud and reduce friction at checkout. To do that, Riskified helps merchants identify consumers that are abusing store policies and helps secure saved customer information (i.e. payment cards). Its platform also automates the approval or denial of online orders, while guaranteeing minimum approval rates and assuming liability for all fraudulent charges.

More importantly, Riskified generates these decisions in real-time with 99.8% accuracy. On average, this helps merchants boost revenue by 8% and reduce fraud-related operating expenses by 39%. That value proposition has helped Riskified win big customers like Wayfair, TicketMaster, and Revolve Group. As one would expect, the company has posted strong top-line metrics over the past year.

Metric

Q2 2020 (TTM)

Q2 2021 (TTM)

Change

Revenue

$140.1 million

$205.5 million

47%

Source: Riskified SEC filings. TTM = trailing-12-months.

Investors should note that Riskified is still unprofitable on a GAAP basis. However, during the most recent quarter, the company did generate positive free cash flow, demonstrating the sustainability of its business model.

Looking ahead, Riskified still has a lot to prove, but the company is already building a strong moat around its business. As more merchants deploy the platform, Riskified collects more data; this makes its AI engine more powerful over time, enhancing its ability to predict fraudulent transactions. This virtuous cycle should be a significant growth driver in the coming years, and it should help Riskified differentiate itself from rivals.

More broadly, e-commerce sales are expected to tick upward at 13.8% per year through 2024, reaching $6.4 trillion in value. That means Riskified's big market opportunity is getting bigger very quickly. And given its solid financial performance and strong business model, I think Riskified could become a monster growth stock.

Trevor Jennewine owns shares of CrowdStrike Holdings, Inc. The Motley Fool owns shares of and recommends CrowdStrike Holdings, Inc., Revolve Group Inc, and Riskified Ltd. The Motley Fool recommends Live Nation Entertainment and Wayfair. The Motley Fool has a disclosure policy.

Stocks Mentioned

Riskified Ltd. Stock Quote
Riskified Ltd.
RSKD
$5.14 (-0.39%) $0.02
Live Nation Entertainment Stock Quote
Live Nation Entertainment
LYV
$73.55 (1.09%) $0.79
Wayfair Stock Quote
Wayfair
W
$41.63 (13.62%) $4.99
CrowdStrike Stock Quote
CrowdStrike
CRWD
$124.07 (5.46%) $6.42
Revolve Group Stock Quote
Revolve Group
RVLV
$26.83 (1.55%) $0.41

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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