Sure, it may seem as if the artificial-intelligence (AI) boom bears similarities to the internet bubble of the late 1990s or the crypto or SPAC booms in recent years. But there are some key differences.
For one, AI has the potential to add lots of value to large companies immediately. Second, the main beneficiaries may not be promotional new startups, but rather already-large public companies with scale and proprietary data, which will be able to automate both customer and employee-facing applications to boost their profits.
On that note, three large companies recently came out with new products and services that incorporate generative AI, and they're already showing signs of financial success.
NASDAQ: CRWD
Key Data Points
CrowdStrike's Charlotte
Like other parts of technology, the cybersecurity sector is seeing both disruption from current economic uncertainty and potential benefits from AI. On one hand, the spending pinch at large enterprises is causing a consolidation toward leading vendors, while AI could potentially lead to more sophisticated attacks, increasing the need for best-of-breed tools.
But that stands to benefit current next-gen leaders with the best products powered by cloud and AI, such as CrowdStrike (CRWD +4.53%). While legacy cyber players are acquiring startups and scrambling to become more cloud- and AI-based, CrowdStrike's entire model was predicated on cloud-based AI from inception. Its central Threat Graph consumes data from its lightweight Falcon platform, constantly improving its offerings as the company grows and its software is deployed on more and more endpoints.
Last quarter, CrowdStrike handily beat revenue and earnings estimates and delivered positive guidance, citing strong upselling and displacement of legacy vendors. And it also introduced a new AI-powered chatbot called Charlotte AI, which combines generative AI with CrowdStrike's vast array of proprietary data garnered from its its large and growing client base.
Charlotte AI stands to benefit not only CrowdStrike's customers but also CrowdStrike's top and bottom lines. While CrowdStrike's Falcon platform does depend a lot on automation and AI, the cybersecurity service is not human-free. CrowdStrike has its own experts to help clients navigate this data and proactively defend their IT departments, and it's not as if enterprises can just do away with their own in-house cyber teams.
On the recent conference call with analysts, management noted that Charlotte has the potential to turn a Tier 1 cyber analyst into a Tier 3 analyst, thanks to the expertise and recommendations Charlotte instantly offers. Management noted that early results showed better security outcomes delivered faster, and that Charlotte can help close the skills gap in cybersecurity that businesses and governments alike need.
That value-added service stands to benefit CrowdStrike's financials, too, as CrowdStrike can either charge more of a premium or go after more market share. In addition, CrowdStrike may also not have to hire as many customer-facing service reps if those tasks can be delegated to Charlotte.
Tencent's eye-opening ad revenue
The Chinese economy is in the doldrums right now, but Chinese tech giant Tencent (TCEHY 1.57%) reported solid results in the second quarter, in defiance of China's recessionary conditions. The tech giant grew revenue 11% overall, with adjusted operating profit growing an impressive 37% as margin expanded.
What especially stood out in the report was Tencent's 34% revenue growth in online advertising, much of which can probably be attributed to WeChat, the billion-user super-app that's akin to Facebook. Tencent noted that WeChat's ad outperformance can largely be attributed to its advanced machine learning and AI algorithms, which are delivering highly targeted ads to customers.
With businesses wanting the most efficient means of advertising in the tough economy, Tencent saw its high-margin online ads rebound strongly. "We believe that the ad tech platform enhancements we've put in place, leveraging large neural network models, have substantially improved the ROI [return on investment] of advertising on our platform," noted Chief Strategy Officer James Mitchell.
Artificial intelligence is already benefiting many large companies. Image source: Getty Images.
But Tencent can also benefit from generative AI in other ways besides ads. Management sees Gen AI as a "growth multiplier" across all Tencent's various businesses, from video-game creation to its own cloud software offerings. One example noted on the call was Tencent Meeting, the company's videoconferencing software, which is now using AI to automatically summarize the meeting that just occurred in written notes.
And Tencent's software engineers are working on the company's own in-house GenAI model, which, management believes, "based on our own testing, it's among the top leading foundation models produced in China."
Tencent is China's largest social network, the largest global video game publisher and creator, and one of China's largest cloud and fintech companies. If companies with more proprietary data and scale stand to benefit most from AI, Tencent may be the biggest beneficiary in China, if not the world. Assuming one is comfortable bargain-hunting in risky Chinese stocks, Tencent remains best-in-class.
Marqeta revving up its speed
Finally, rising fintech company Marqeta (MQ +1.00%) got multiple bouts of good news recently, with a solid earnings report showing stronger-than-expected revenue growth, along with the announcement of its contract renewal to power Block's (SQ +2.96%) Cash App for another four years. That's important, as Block accounted for a whopping 78% of Marqeta's revenue last quarter.
While Marqeta will be giving up some revenue and margin on that business as part of the deal, the four-year extension with both Block and its buy-now, pay-later subsidiary, Afterpay, should outweigh the costs, as both customers have been growth stars for Marqeta.
With the deal in the rearview mirror, Marqeta can now set about increasing its client base as the leading debit and credit card issuing technology platform. Marqeta's tech gives customers the ability to change card characteristics quickly and flexibly, which is attractive to a whole bunch of clients looking to issue their own flexible rewards programs, either to customers, or to their own employee bases for the purposes of expense management.
After earnings, Marqeta also revealed its first generative AI product, Marqeta Docs AI, which combines OpenAI's generative AI tools with Marqeta's internal data to help Marqeta's customers more quickly navigate the Marqeta Docs site.
Many of Marqeta's customers are not financial institutions, so they may not be as familiar with all the complexities of launching and running a card program. Over the past few earnings calls, new CEO Simon Khalaf noted there is usually a substantial lag between booking a client and getting that client's program up and running. If these new AI tools can help clients get going more quickly, that would benefit everyone, including Marqeta.
Moreover, Marqeta noted that its internal use of generative AI has already helped its internal tech teams reduce the time spent on coding and testing code by up to 75%.
Marqeta is an interesting and inexpensive-looking fintech, but it has a somewhat low gross margin compared with other software players. If management can reduce costs and increase speed through the use of AI, that could help Marqeta expand margins as the company scales, which would be a big deal for the stock's value.
