Artificial intelligence (AI) has helped push Nvidia, Microsoft, and a handful of other tech stocks to new valuation highs this year. But not every company with opportunities in the space is trading near record prices -- and some actually remain in beaten-down territory.
If you're looking for deeply discounted companies with significant growth opportunities in the AI space, read on to see why two Motley Fool contributors identified these stocks as top buys.
This AI-powered cybersecurity stock has big upside
Keith Noonan: SentinelOne (S 1.70%) has seen volatile trading after going public in summer 2021. The cybersecurity stock's most recent big sell-off came after management cut the company's sales forecast for the year.
While its midpoint guidance range had previously called for annual sales growth of 50.5%, the updated midpoint target estimates a roughly 41% sales increase. Wavering customer confidence in the face of macroeconomic uncertainty is resulting in tightening budgets, but SentinelOne's big valuation pullback could be a buying opportunity for long-term investors seeking to benefit from artificial intelligence and cybersecurity trends.
SentinelOne's platform incorporates multiple layers of AI technologies in order to seek out and shut down cyberattacks. With bad actors increasingly using artificial intelligence to attack businesses and institutions, gain access to valuable data, and hold networks hostage, demand for cybersecurity services will see strong growth through the next decade and beyond. And even though SentinelOne's revised sales guidance surprised the market, it's still been expanding at a very healthy clip.
S Revenue (TTM) data by YCharts
The cybersecurity specialist closed out the first quarter with 10,680 customers, representing an increase of 43% year over year. The business has also continued to see encouraging customer trends along other lines. The total number of clients generating over $100,000 in annual recurring revenue grew 61% to reach 917, and customers using the company's platform once again increased their spending more than 25% on average.
SentinelOne's non-GAAP (adjusted) gross margin is also seeing significant improvement. In Q1, the company's adjusted gross margin jumped to 75% -- up from 68% in the prior year period. For the full-year period, management is targeting an adjusted gross margin between 74% and 75%, expanding from 72% last year.
SentinelOne's share price is now down roughly 65% from market close on the day of its public debut, and 80% from the lifetime valuation high that it reached soon after. For investors interested in capitalizing on AI-driven trends in the cybersecurity industry, the stock could make for a worthwhile portfolio addition at today's prices.
Fiverr is an undercover AI stock
Parkev Tatevosian: Fiverr International's (FVRR 3.74%) stock price is down roughly 91% off its highs of recent years. The company has experienced decelerating revenue growth as enterprises pulled back hiring on the platform.
After growing revenue by 77% in 2020 and 57% in 2021, Fiverr's revenue expanded by 13% in 2022. That said, the short-term woes could be an excellent opportunity for investors looking to buy beaten-down stocks that could benefit from AI.
Fiverr is a platform that brings together gig workers offering services for sale with businesses looking to hire people for short-term tasks. The people offering services on Fiverr's platform will become more productive using AI. Of course, businesses would be interested in spending more on Fiverr's platform if they see the services are becoming more effective.
The robust revenue growth of earlier years has already boosted Fiverr's cash flows. Between 2020 and 2022, Fiverr's cash flow from operations totaled $85 million. That was a huge turnaround from the $71 million negative the company reported in that metric the previous three years.
Moreover, the 91% decrease in the market price has brought Fiverr to an inexpensive valuation. At a forward price-to-earnings ratio of 14.6, the stock is near the cheapest it's been according to this metric. Investors looking for AI stocks not trading at nosebleed valuations, like so many are, have an excellent choice with Fiverr.
