The release of the chatbot ChatGPT has brought talk of artificial intelligence (AI) to water coolers all over. The platform can help users answer questions, draft letters and papers (and even articles), solve math problems, and much more. Microsoft is investing billions of dollars into it.
It does have limitations, however. The data used by ChatGPT is from 2021 and isn't updated like the search results you get from Alphabet's (GOOG 0.36%) (GOOGL 0.29%) Google Search. There are many questions about potential cheating in schools or even writing articles that (1) aren't original and (2) may use questionable data and analysis. (This author won't relinquish creative control anytime soon).
However, in time, the technology -- and its uses -- should develop, and more widespread adoption of AI in general might follow. With that said, although ChatGPT might be stealing the spotlight right now, several companies have already been implementing AI with great success for years.
Let's look at three attractive stocks of companies leveraging AI right now: Alphabet, CrowdStrike (CRWD -0.49%), and Cloudflare (NET 2.29%).
1. Alphabet's rumored demise is greatly exaggerated
Some have speculated that ChatGPT represents a serious threat to Google Search. But Google Search, Maps, Cloud, and others have used AI for years to make the platforms functional and up-to-date. YouTube uses AI to generate video captions, and Gmail uses it to block millions of spam emails daily.
Google has been developing its own chatbot, "Bard," for years and will begin private testing it in the coming weeks. The race is on, and investors shouldn't underestimate Alphabet's prowess.
On the financial front, Alphabet increased sales by 10% in 2022 to reach $282.8 billion despite a challenging economy. Google Cloud impressed with 37% growth to $26.3 billion in sales. But perhaps the best thing about the company's results is its monster cash flow.
Alphabet produced over $90 billion in cash from operations for the second year. This allowed the company to repurchase over $50 billion of its stock, also for the second year in a row. Share repurchases give existing shareholders a larger slice of the company pie, and Alphabet has plans to buy back much more with the stock price down.
From its AI to its revenue to its cash flow, Alphabet could be a massive winner for long-term investors.
2. CrowdStrike uses AI for cybersecurity
CrowdStrike's cloud-based AI-powered Falcon platform leverages machine learning to protect its customers from data breaches. AI allows CrowdStrike to mitigate sophisticated threats in real time.
This is why customers are flocking to the platform, as shown below.
Data source: CrowdStrike. Chart by author.
CrowdStrike's annual recurring revenue has skyrocketed along with the increase in customers, going from $141 million at the end of 2018 to over $2.3 billion last quarter on 54% year-over-year growth.
CrowdStrike isn't profitable under generally accepted accounting principles (GAAP) just yet; however, it is on pace to eclipse $500 million in free cash flow this fiscal year and has a gross margin over 75%. The stock trades at its lowest price-to-sales (P/S) ratio since the March 2020 crash. Investors fear a recession, but cybersecurity is necessary and could hold up better than expected.
Long-term investors looking for a beaten-down growth stock with a bright future in AI should find CrowdStrike compelling.
3. Cloudflare helps AI function
No matter how nifty an AI tool is, users won't stick unless it's quick, reliable, and secure. This is where Cloudflare's edge computing network can make a massive difference.
Cloudflare has built one of the world's largest networks and is truly global. And with AI platforms using tremendous amounts of data, Cloudflare has partnered with Nvidia to create a platform for developers to deploy applications.
Cloudflare stock has also been ground down by the market's recent distaste for growth stocks, but its results are nonetheless impressive. The company expects to earn $974 million in fiscal year 2022, ending December 2022, on 48% growth. Like CrowdStrike, it isn't yet GAAP profitable, but the stock trades at a P/S ratio lower than historical averages.
Growth stocks like Cloudflare and CrowdStike are best for investors with long timelines and moderate risk tolerance. If this describes your investing style, Cloudflare stock is certainly worth a look.
