Artificial intelligence (AI) is already changing the world, and it seems to be taking massive steps forward with each passing day. If there's one tech trend that investors can't afford to miss out on, it's the rise of AI.
But while artificial intelligence leaders are gearing up for massive performance-driving changes, the early stages of the AI revolution also coincide with macroeconomic conditions that have generally made investors more cautious about growth stocks. As a result, some top artificial intelligence players still trade down big from previous highs.
If you're on the hunt for stocks that can help you cash in on this incredibly disruptive technology trend, here's why investing in CrowdStrike (CRWD 0.81%) and Alphabet (GOOG 0.66%) (GOOGL 0.49%) is a smart move right now.
This industry leader has a great risk-reward profile
Keith Noonan: CrowdStrike is helping its customers stay ahead of the curve in the cybersecurity arms race. While AI has the potential to produce some incredible innovations and even save lives, it will also continue to be used for nefarious purposes. Cyberattacks are already more numerous and damaging than ever before, and the use of advanced artificial intelligence technologies threatens to push the reach and capabilities of bad actors to new heights. Thankfully, CrowdStrike has been building and honing its AI-powered defensive technologies, and its Falcon cybersecurity platform has demonstrated incredible performance when it comes to identifying and repelling attacks.
With cyberattacks multiplying and evolving, having adequate protections in place is critical for businesses and institutions, and CrowdStrike is perfectly positioned to meet rising demand. The company grew its revenue 54% last year to reach $2.24 billion, and non-GAAP (adjusted) earnings skyrocketed to $1.30 per share. Crucially, the long-term growth story here remains in the early stages of unfolding.
Based on current module offerings across its Falcon platform, CrowdStrike anticipates that its total addressable market (TAM) will expand at a 13% compound annual growth rate over the next two years to reach $97.8 billion in 2025. Given that the business has been growing revenue at a rate that's significantly exceeded growth for the service categories it operates in, that paints an encouraging picture. But the growth outlook is actually even better.
With organic growth for existing services, future product launches and initiatives, and unfolding cloud security opportunities, CrowdStrike sees its TAM exploding to reach $158 billion in 2026. And with the company guiding for roughly $3 billion in sales this year, there's a massive and fast-growing market to expand into, and the strength of its product offerings should help the business continue to gain share.
CrowdStrike is at the intersection of two incredibly powerful trends -- the evolution of AI and rising need for high-performance cybersecurity services. Down roughly 58% from its high, the stock looks like a smart buy for long-term investors.
Alphabet's stock is falling due to fears over ChatGPT
Parkev Tatevosian: Down 30% off its recent highs, Alphabet stock is a bargain right now. Of course, there has been no shortage of talk about how ChatGPT will disrupt Google's dominance in the search engine market. That's one of the reasons Alphabet's stock is down as much as it is. In my opinion, those worries are overblown. After all, Alphabet is working on its own ChatGPT-like consumer-facing feature that could be comparable.
It's also important to remember how powerful Alphabet's business has been over the previous decade. Revenue has grown at a compound annual rate of 20%. Meanwhile, Alphabet's businesses are incredibly profitable. Indeed, between 2014 and 2022, its operating income soared from $16.5 billion to $74.8 billion. Even if Alphabet were to lose share in the search engine market, it has multiple levers it can pull to boost profitability. Already, the company has undertaken a serious cost-cutting campaign, letting go of thousands of employees, reducing office space, and focusing on core parts of the business.
GOOG PE Ratio (Forward 1y) data by YCharts
Moreover, the worries over ChatGPT harming Alphabet's business have brought its valuation to bargain levels. Alphabet is trading at a forward price-to-earnings ratio of 17, near the lowest it has traded for according to this metric in more than a year. Investors who agree that the fears over ChatGPT are overblown might want to buy shares of Alphabet stock at these bargain prices.
CrowdStrike and Alphabet are attractive AI plays
CrowdStrike and Alphabet have largely different focuses in the artificial intelligence space, but both stocks look like worthwhile buys for tech investors.
CrowdStrike enjoys a category-leading position in its corner of the cybersecurity market thanks to its AI-powered software capabilities, but the company's valuation has slid due to macroeconomic pressures. Meanwhile, Alphabet's strengths and opportunities in artificial intelligence have been broadly overlooked because of the excitement surrounding ChatGPT.
Both companies are on track to play key roles in this incredible new tech trend, and they present attractive value for long-term investors at current prices.
