Nvidia has become the gold standard in artificial intelligence (AI). From supercomputing hardware to subscription software, it provides everything a business needs to develop and run AI applications at scale. Not surprisingly, Nvidia is also the most valuable semiconductor company in the world. Of course, I still think the stock is worth buying, and I remain a shareholder myself, but other AI companies probably offer more upside.
1. Upstart Holdings
Traditional credit evaluation models typically incorporate fewer than 30 variables, meaning banks often fail to quantify risk accurately when making lending decisions to individuals. To that end, many creditworthy borrowers are excluded, and those who are approved sometimes pay too much interest to borrow money. But Upstart's platform captures over 1,500 data points per borrower, and it measures those variables against 21.6 million repayment events (and counting), allowing lenders to quantify risk more precisely to better determine creditworthiness.
In fact, a report from the Consumer Financial Protection Bureau suggests that, compared to traditional credit models, Upstart's AI models can boost approval rates by 27% while lowering the average interest rate by 16%. And that value proposition has turbocharged Upstart's financial performance. Last year, transaction volume soared 241% to $11.8 billion, and the number of bank partners on its platform reached 38, up from 12 in the prior year. In turn, revenue rocketed 264% higher to $849 million, and the company posted net income under generally accepted accounting principles (GAAP) of $135 million, up from $6 million in 2020.
More importantly, Upstart still has plenty of room to grow. Its technology is currently used to originate personal and auto loans, and those markets are collectively valued at $820 billion. In other words, Upstart's transaction volume of $11.8 billion in 2021 accounts for less than 2% of its total addressable market (TAM). Better yet, management plans to expand into new verticals over time, including the $4.6 trillion mortgage origination market and the $644 billion small business loans market.
Today, Upstart is an $8 billion business -- worth far less than Nvidia at $605 billion -- but it's well on its way to disrupting a multi-trillion-dollar industry. With that in mind, I think this stock could grow tenfold in the next decade.
2. CrowdStrike Holdings
CrowdStrike has become the gold standard in multiple verticals of the cybersecurity industry. Its platform includes 22 different software products, ranging from endpoint and cloud security to identity protection and managed services. The company's core innovations are its cloud architecture and the lightweight sensor installed on each protected device. That sensor crowdsources relevant security data from those devices and streams it back to the cloud, where CrowdStrike's AI engine analyzes those signals to detect and prevent cyberattacks.
That approach creates a network effect. Each new data point makes CrowdStrike's AI a little better, and whenever a threat is detected in one environment, it can be blocked across every protected device. In that way, each new customer creates value for all existing customers, and vice versa. That dynamic has kept CrowdStrike on the cutting edge of the industry. In fact, Forrester Research recently named the company as a leader in endpoint security, managed services, and cybersecurity incident response.
That recognition has come alongside red-hot financial results. CrowdStrike grew its customer base 65% to 16,325 over the last 12 months, and 34% of those customers now use six or more software products, up from just 6% in fiscal 2019 (ended Jan. 31, 2019). In turn, revenue skyrocketed 66% to $874 million in fiscal 2022 (ended Jan. 31, 2022), and free cash flow soared 51% to $442 million.
Looking ahead, CrowdStrike's strong competitive position and its capacity for innovation should help it maintain that momentum. For instance, it recently released a new software module: Extended Detection and Response (XDR). XDR feeds data from third parties like Zscaler and Mimecast into CrowdStrike's AI engine, thereby unifying security signals across corporate networks, email systems, cloud workloads, and endpoint devices. In doing so, XDR accelerates incident detection and response.
More broadly, CrowdStrike has a big TAM -- $126 billion by 2025, according to management -- and the company is clearly executing on that opportunity. If CrowdStrike can grow revenue by 30% per year over the next decade, I think this $50 billion business could grow fivefold during that time. That's why this AI growth stock looks like a smart buy.