More than any other trend, artificial intelligence (AI) has powered the stock market's rally this year.
Even though excitement surrounding AI has been feverish all year and elevated the prices of several AI-related stocks, there are still companies with strong positions in the AI space that are trading at levels that leave room for investors to benefit from market-crushing returns that the interest in AI is creating.
If you're on the hunt for investment opportunities this month, read on for a look at two companies poised to play important roles in shaping and advancing the AI revolution.
1. Snowflake
These days, the vast majority of large companies rely on cloud infrastructure services from multiple providers. Unfortunately, Amazon, Alphabet, and Microsoft don't make it easy to share data across their walled-off infrastructures.
Snowflake's (SNOW 3.69%) Data Cloud platform solves this issue and provides streamlined foundations for data warehousing, analytics, and app building. The ability to amass valuable data that can be fed into models is central to the AI revolution, and the software specialist is offering its customers tools that make it possible to access and utilize a much more comprehensive range of relevant information.
More than 1,500 Snowflake customers used its technologies for data science, machine learning, and AI workloads in the first quarter, equaling a 91% increase year over year. Large enterprises have already given major votes of confidence to the company, and its long-term opportunity in AI and machine learning is likely still just beginning to unfold.
In addition to its core data-warehousing services, the software specialist's Powered By Snowflake platform offers a cloud-based foundation for building and running applications. Thanks to its native support for data combination and storage, Powered By Snowflake could become an increasingly attractive destination for analytics, machine learning, and AI applications.
The company recently announced a collaboration with Nvidia and will be integrating the AI leader's cloud-based processing and software services into Data Cloud. As a result of the partnership, Snowflake customers will be able to more easily and securely build large language models for generative AI services on its platform.
With the company valued at roughly 82 times management's target for non-GAAP (adjusted) free cash flow from product revenue in the current fiscal year, Snowflake isn't a low-risk stock. On the other hand, the business has been expanding at a brisk space and still has huge growth potential, and the market may be severely underestimating the role its technologies ultimately have in pushing artificial intelligence forward. Trading down 58% from its high, Snowflake is a picks-and-shovels play in the AI space that could deliver stellar returns for long-term shareholders.
2. CrowdStrike
CrowdStrike's (CRWD 2.03%) Falcon software platform uses AI to identify and shut down cyberattacks. Through its category-leading technologies, customers are able to fend off attempts by bad actors to use malware, exploits, credential theft, and other means to breach networks through computing hardware and servers.
With AI tech set to become increasingly advanced, the cybersecurity specialist's defensive capabilities will likely become even more important for businesses and institutions. The large language models employed in generative AI applications already lower the barrier to entry for bad actors to create effective cyberattacks.
The good news is that CrowdStrike has been using AI and machine learning for more than a decade, and its platform continues to improve with each new threat encountered along the way. The rising tide of cyber threats not only helps the company attract new customers, but it also leads to expanding business relationships with clients already using the Falcon platform.
In the first quarter, the company increased the number of deals closed involving eight or more service modules by 50% compared to the prior-year period. Thanks to rising spending from existing clients and new customer additions, CrowdStrike's annual recurring revenue (ARR) grew 42% year over year to reach $2.73 billion in Q1.
The company has also been reporting impressive margins, posting an adjusted free-cash-flow margin of at least 30% in each of its last three fiscal years and guiding for a repeat performance in the current term. While CrowdStrike has a growth-dependent valuation and trades at roughly 60 times this year's expected adjusted earnings, I think its sturdy business foundations and long-term expansion outlook open the door for strong stock performance at current prices.
Still trading down roughly 51% from its high, CrowdStrike stands out as a great way for investors to profit from AI trends in the cybersecurity space.
