The rapid evolution of artificial intelligence (AI) has powered big gains for the stock market this year and helped push shares of industry leaders, including Nvidia and Microsoft, to new highs. Still, there are other highly promising players in the unfolding AI space trading at big discounts compared to their previous highs.
If you seek top AI stocks, two Motley Fool contributors suggest you might want to take a closer look at Amazon (AMZN 3.43%) and CrowdStrike (CRWD 2.03%) as great investment opportunities to buy and hold forever.
Amazon is using AI in nearly every area of its business
Parkev Tatevosian: Amazon stock managed a spectacular 54% run-up so far in 2023. But that followed a steep slide in 2022, and Amazon's stock price still trades about 31% below the high it touched in 2021. Some of the run-up this year is tied to Amazon's designation as an AI stock.
Arguably, Amazon is in one of the best positions to benefit from the increasing effectiveness of AI technologies. It is, of course, expensive to deliver items quickly to people's doorsteps all over the world. The improvements to that process that AI can bring (even minor ones) could add billions to the company's bottom line. Amazon's cloud services segment also stands to benefit greatly as other businesses incorporating AI into their operations and products increase their use of cloud infrastructure.
Amazon's e-commerce business will also see sizable benefits. Using AI in real-time to route products more efficiently and boosting its recommendation systems to highlight the products consumers are most likely to purchase are immediately tangible cases where Amazon can benefit from AI.
Amazon generated $514 billion in revenue in 2022, but earned just $12 billion, leaving massive opportunities to improve the bottom line. AI will be a huge contributor to making that improvement happen.
AMZN PE Ratio (Forward 1y) data by YCharts.
Given the steep price drop in 2022 (and despite the partial recovery), Amazon's stock now trades at a reasonable valuation, especially when investors consider its excellent growth prospects. It also helps that the hundreds of billions in capital expenditure Amazon made to build out its logistics network could protect that segment from competitors for decades. Now is a great time to buy into this stock and hold it while it grows into its valuation.
CrowdStrike is an AI-powered cybersecurity leader
Keith Noonan: CrowdStrike's AI technologies helped the company cement a leading position in the cybersecurity industry. The company's cloud-based Falcon software platform uses AI to identify, categorize, and shut down cyberattacks targeting computers, mobile devices, servers, and other hardware.
With cybercriminals now turning to generative AI technologies to help them create a wide range of attacks, Falcon's adaptive capabilities are set to become even more valuable. Trading at around 44% below the high it reached in November 2021, CrowdStrike looks like a great long-term buy right now.
The cybersecurity leader's revenue rose 37% year over year to $731.6 million in the second quarter. The company's non-GAAP (adjusted) gross margin also improved to 80% -- up from 78% in the prior-year period. With help from these trends and cost-saving initiatives, its adjusted earnings rose roughly 106% year over year to reach $0.74 per share in Q2.
CrowdStrike also ended its last reported quarter with roughly $3.2 billion in cash and short-term equivalents on its books. The company's strong balance sheet puts it on good footing to fund new growth initiatives and pursue potential acquisitions that could strengthen its existing offerings and branch the business into new categories. Based on management's commentary, there's a good chance that CrowdStrike will be making some big moves along those lines within the next few years.
This year, CrowdStrike estimates that it has a total addressable market of $76 billion. The company continued to gain share across its key service categories, but it's still capturing only a small fraction of its addressable market. But thanks to expanding markets for its existing services, new product launches, future initiatives, and cloud security opportunities, management believes that the business will have a total addressable market of $158 billion in 2026.
CrowdStrike is positioned to benefit from AI-driven shifts in the cybersecurity industry and looks poised to launch into game-changing new service categories. With its share price still down big from its 2021 peak, the software innovator presents an attractive investment opportunity right now.
Amazon and CrowdStrike stand out as top AI stocks
Amazon and CrowdStrike are two very different artificial intelligence stocks, but each company presents an attractive risk-reward profile for investors. While Amazon is set to see AI-driven tailwinds across business segments ranging from cloud services to e-commerce, CrowdStrike's opportunities are largely concentrated in the cybersecurity space. Even though these two companies have different focuses, each stock looks like a smart play for investors aiming to capitalize on the artificial intelligence revolution.
