With the Nasdaq Composite still down 21% from its high, the index remains in bear market territory, and many growth stocks are down far more from their valuation peaks. But there are signs the market is warming back up to companies with growth-dependent valuations.
Inflation seems to be cooling off, and the Federal Reserve may be done raising interest rates this year -- a potential development that could create a more favorable trading backdrop for technology stocks. Additionally, the rise of artificial intelligence (AI) is powering huge gains for some tech leaders, and it's possible the emerging trend could play a driving role in lifting the broader market.
While it's impossible to state with certainty when exactly the next bull market will begin, history suggests there's one somewhere around the corner -- and there are already catalysts that could continue to lift top growth stocks. With that in mind, here's a look at one AI tech leader that's worth loading up on in preparation for the market's next big rally.
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This AI stock is built to win long-term
CrowdStrike (CRWD -0.85%) is the clear leader in endpoint cybersecurity services. The company's Falcon software platform protects networked computers, mobile devices, servers, and other hardware -- and it uses artificial intelligence to identify and shut down threats. Falcon is built around a "collect data once, reuse many times" approach, enabling it to continually improve its protective capabilities as it comes into contact with new threats.
With bad actors already using artificial intelligence to carry out cyberattacks, having high-performance, AI-driven cybersecurity protections is more important than ever and will only become more crucial. CrowdStrike's industry-leading position and best-in-class service offerings have the company positioned to benefit from huge demand catalysts, and there's a good chance it will be able to continue gaining share in its current markets and use its existing foundations to branch into new service categories.
Expandable business relationships and strong client growth
In the fourth quarter of CrowdStrike's 2023 fiscal year, which ended Jan. 31, the number of customers using five or more modules on its Falcon platform grew 52% year over year. Meanwhile, the number of customers using six or more services and seven or more services grew 62% and 75%, respectively.
The company's success in selling additional services to clients already using its platform shows CrowdStrike's offerings are well attuned to market demands and that customers see strong value in its software. Through the sale of additional modules, CrowdStrike increased revenue from customers already on board with the Falcon platform by 25.3% compared to the prior-year period.
The business has also continued to onboard new clients at an impressive clip. CrowdStrike's total customer count increased 41% annually to reach more than 23,000 at the end of last year, and it's likely the company still has plenty of room for expansion. With 556 of the Forbes Global 2000 companies using its services at the close of its last fiscal year, the company has done an impressive job onboarding large customers, but it still has plenty of untapped growth potential in the enterprise market.
Last year, new customer additions and increased spending from existing clients pushed the company's revenue up 54% annually to reach approximately $2.2 billion, and management expects sales to hit roughly $3 billion this year. CrowdStrike is also already posting solid profits and explosive growth on a non-GAAP (adjusted) basis, increasing per-share earnings 130% last year and guiding for a 49% increase in its current fiscal year. Even with macroeconomic pressures tamping down on growth momentum somewhat, the company's expansion outlook remains very promising.
A business model built for huge earnings growth
With explosive sales growth and a gross margin of 76% in each of its last two fiscal years, CrowdStrike's asset-light business model has the makings of a cash-generating machine. The company closed out its 2023 fiscal year with a free cash flow (FCF) margin of 30%, marking the third straight year that it delivered an FCF margin of 30% or better.
The cybersecurity leader expects to clear that threshold again this year, and guidance for roughly 34% annual sales growth suggests it's on track to deliver about $900 million in free cash flow. There's plenty of room for continued expansion from there.
CrowdStrike is delivering fast-growing sales, earnings, and FCF even in the face of macro headwinds. It also has strong levels of net revenue retention, impressive gross and FCF margins, and a large and growing addressable market to expand into.
With the business already the category leader in endpoint cybersecurity services and getting stronger thanks to its evolving AI platform, the cybersecurity specialist looks like a great buy-and-hold investment right now.
