Hypergrowth may be back. So far this year, the Nasdaq Composite has risen 32%, and stocks like Nvidia have nearly tripled amid high hopes for its AI capabilities.
Now, investors appear focused on identifying which stocks could still deliver massive increases in the future. Two companies well-positioned to do so are CrowdStrike (CRWD 2.03%) and Palantir (PLTR 3.73%). Let's take a close look to see why.
1. CrowdStrike
CrowdStrike is one of the few tech stocks for which the hypergrowth did not end during the 2022 bear market. The cybersecurity stock benefited because cloud security is a necessity regardless of economic conditions. Indeed, Market.us forecasts a 23% compound annual growth rate (CAGR) for the cloud security industry between now and 2032. This would make it a $148 billion industry.
Also, IDC Worldwide ranked CrowdStrike No. 1 for modern endpoint security market share for the third straight year, which serves as an added boost to the company and the stock. Indeed, its Falcon platform continues to attract customers by securing endpoints, which can consist of laptops, smartphones, servers, or any device connected to the internet. The company then sells additional modules for added protection.
In the first quarter of fiscal 2024 (ended April 30), this strategy helped CrowdStrike earn $693 million in revenue, a 42% rise from the same quarter last year. But while expense growth closely matched revenue increases, its $31 million in interest income led to a net income of $491,000, up from a loss of $32 million in the year-ago quarter.
For fiscal 2024, CrowdStrike forecasts revenue of more than $3 billion. If estimates hold, that will mean a 35% increase in revenue for the fiscal year, only a slightly lower growth rate than the previous quarter.
Also, the market seems to have already punished CrowdStrike, which suffered a sell-off during the 2022 bear market. Still, an improving market has helped the stock in recent months. Year to date, it has surged nearly 40%. While its price-to-sales (P/S) ratio may seem high at 14, its sales multiple is near record lows for the stock. Such a valuation implies that it is likely not too late to buy this growth name.
2. Palantir
Palantir has stood out for its ability to analyze data and offer analytical insights. The company first targeted the military and law enforcement realms but has more recently expanded into the commercial space. Also, AI played a significant role in its analyses, applying the technology to continuous improvement and deploying the models end-to-end for continuous monitoring.
However, it recently expanded its AI capabilities by launching AIP, its generative AI tool. This adds functionality for large language models (LLMs), which can interpret, recommend, and initiate courses of action, allowing users to watch and oversee activities in a manner compliant with regulations.
Although it is too early to know how AIP affects revenue, without it, Q1 revenue came in at $525 million, 18% more than year-ago levels. This occurred as its customer count grew by 41% during that time frame, with U.S. commercial customers rising by 50%. That increase and the tailwinds from AIP should bode well for revenue growth in the near future.
Palantir also reported its second consecutive quarter of positive net income, with the company earning $19 million as operating income turned positive. Additionally, it forecasts a profit in every quarter this year. Thanks to this positive net income and the high expectations surrounding AI, Palantir stock has performed well, rising by nearly 140% since the beginning of the year.
Moreover, it could have significantly more upside. While its P/S ratio has risen to 16, it still lags behind the valuation of the 2021 bull market, when it routinely sold for more than 24 times sales. As more customers adopt the platform and the effects of the AIP module on company revenue come to light, it could mean further gains for this AI stock.
