After an intense stretch of sell-offs last year, the stock market has come roaring back in 2023. The rise of artificial intelligence (AI) has played a big role in the market's comeback, and some top players in the space have seen their valuations rocket to new heights.
On the other hand, there are also promising companies with significant AI exposure that still trade at substantial discounts. If you're on the hunt for worthwhile investment opportunities in artificial intelligence, read on to see why two Motley Fool contributors think that investing in these stocks below would be a smart move right now.
AI is changing the face of cybersecurity
Keith Noonan: Cyberattacks using artificial intelligence will become more numerous, capable, and potentially damaging in the coming years. In turn, this will create demand for AI-powered cybersecurity technologies that are capable of defusing the barrage of new threats. CrowdStrike (CRWD 2.03%) has been incorporating AI and machine learning since its founding more than a decade ago, and it's poised to benefit from shifting dynamics in the cybersecurity space.
With a rising tide of threats spurring demand, CrowdStrike expects that its total addressable market (TAM) for the services it currently offers will grow from $76.1 billion this year to $97.8 billion in 2025. After factoring in new product launches, initiatives, and cloud-security opportunities, the company anticipates it will have a TAM of $158 billion in 2026 -- more than double this year's level.
This year, CrowdStrike expects to grow sales approximately 34% annually to reach $3 billion, and it anticipates non-GAAP (adjusted) earnings to increase 54% to reach roughly $2.37 per share. That's down from sales growth of 54% last year and 130% annual growth for adjusted earnings, but it still suggests healthy momentum for the business. What's more, CrowdStrike is still just scratching the surface of a large and rapidly expanding addressable market.
With market leadership in its corner of the cybersecurity industry, CrowdStrike will have opportunities to drive consolidation trends in the space and sell a wider range of software offerings to its customers. The company's AI-powered platform will also continue to become increasingly advanced as it encounters new threats, setting the stage for customers to get even more value from its services.
Even though the stock has rallied roughly 40% year to date, the company's price still is still down nearly half from its high.For long-term investors, I think that CrowdStrike could be a way to play some underappreciated trends in AI right now.
Pinterest is using AI to make ads more relevant
Parkev Tatevosian: Artificial intelligence is rising in popularity in 2023 primarily because of large language models like ChatGPT. However, AI has been used for several years by companies like Amazon when it recommends a product you might consider buying based on your purchase and browsing history. Recommender systems like the one I mentioned are a form of AI that I find practically helpful.
Pinterest (PINS 4.04%) is a company that could benefit from using recommender systems to show relevant ads to folks browsing its app. The more effective Pinterest is at showing relevant advertisements, the more marketers will want to spend on its platform. That's because it will increase the return on investment from advertisements.
If a business spends $100 on Pinterest and observes an increase in sales of $200, it is likely to boost its advertising spending. Already, Pinterest has grown its revenue from $473 million in 2017 to $2.8 billion in 2022. It would not surprise me if using AI drives Pinterest's revenue higher still.
PINS PE Ratio (Forward 1y) data by YCharts
The market has arguably yet to come to this conclusion. Pinterest's stock is trading at a forward price-to-earnings ratio of roughly 23, near the lower end of its range in the previous year-and-a-half. This might be an opportunity for long-term investors to buy Pinterest at a reasonable valuation before the bull market roars.
CrowdStrike and Pinterest are underappreciated AI stocks
Artificial intelligence has undoubtedly been the hottest trend on Wall Street this year, but this revolutionary tech shift is still just getting started. While CrowdStrike and Pinterest might not be pure plays in AI, both companies are poised to push the broader tech category forward and benefit from tools that help power strong business and stock performance.
