Artificial intelligence (AI) is already having a profound impact on the world. It's also having a profound impact on the stock market.
Thanks to a huge surge in AI-driven demand, Nvidia (NVDA -10.01%) delivered first-quarter results and guidance that drove huge gains for its stock and helped power bullish momentum for the broader market.
Spurred by AI-related chip demand for data centers, Nvidia now expects to record revenue of $11 billion in sales in the current quarter -- guidance that absolutely trounced Wall Street's previous target for sales of $7.2 billion in the period. That kind of demand ramp-up was almost unprecedented.
On the heels of its explosive, post-earnings rally, Nvidia's stock price is now up 164.5% across 2023's trading. But the processing leader isn't the only way for investors to play the AI revolution.
While Nvidia currently trades near all-time highs, there are other companies that are at earlier stages of benefiting from the massive trend and are still trading at big discounts. With that in mind, read on for a look at two top AI growth stocks that could deliver huge returns for long-term investors.
1. CrowdStrike
Generative AI capabilities are making it easier for bad actors to build new cyberattacks and viruses. It's also possible that adaptive AI technologies will gain the ability to analyze and circumnavigate defense systems that aren't sufficiently advanced.
As the world increasingly relies on digital networks, bad actors have increased incentives to carry out attacks. Unfortunately, the rise of AI technologies will give cybercriminals new tools for breaching networks, and amplify the scale and scope of threats. The good news is that CrowdStrike (CRWD -3.90%) has AI-powered protection tools capable of rising to the challenge.
CrowdStrike's Falcon cybersecurity platform uses AI to analyze threats and build an evolving database capable of identifying and defeating attacks. When computers, mobile devices, services, and other hardware are connected to the company's cloud-based software network, cybercriminals face layers of protection that make it far more difficult to breach networks.
CrowdStrike is the top provider of endpoint cybersecurity services, and it's seeing strong demand. In the company's first quarter, which ended April 30, CrowdStrike grew revenue 42% year over year to reach $692.6 million, and its non-GAAP (adjusted) net income rose 82% to hit $136.4 million. Free cash flow also rose 44% compared to the prior-year period to reach $227.4 million.
The Q1 sales performance brought the company's annual-recurring revenue to $2.73 billion, but CrowdStrike still has plenty of room for expansion. The company expects that it will be able to reach annual-recurring revenue of $5 billion by January 2026, and its long-term growth story could still just be heating up at that point.
With the stock still down roughly 48% from its lifetime high, CrowdStrike looks like a great buy for growth investors at today's prices.
2. Snowflake
Snowflake (SNOW -1.99%) provides data-warehousing tools that make it possible to combine and analyze information from different cloud-infrastructure services. High-performance AI systems need to be fed huge amounts of relevant data in order to produce valuable results, and the company's software platform is poised to play an important role in the evolution of artificial intelligence.
According to research conducted by Oracle, 98% of enterprises have already adopted strategies that rely on cloud-infrastructure services from multiple providers. With businesses of all sizes likely to become increasingly reliant on both internal and external AI services, the ability to train AI models on a comprehensive range of valuable data will be crucial.
Trading off 55% from its valuation peak, Snowflake offers big upside potential for risk-tolerant investors.
By the 2026 calendar year, Snowflake anticipates that its Data Cloud platform will have an addressable market of $248 billion. With management guiding for product revenue to increase 34% annually to reach roughly $2.4 billion in the company's current fiscal year, the data-software specialist is still just scratching the surface of its potential.
While many large tech companies have been laying off staff recently, Snowflake actually increased its employee headcount. Even with macroeconomic pressures tamping down on growth opportunities in the near term, the company boosted its employee count by 7% sequentially to reach 6,310 last quarter in order to continue laying the foundations for long-term growth. Yet despite the hiring push, the business still recorded an impressive 45% free-cash-flow margin in the period.
With Snowflake enjoying a category-leading position in its niche, the company is on track to benefit from AI-related demand catalysts. Building a position in the stock before artificial intelligence becomes a bigger sales driver for the business could have big payoffs for long-term investors.
