It seems inevitable that artificial intelligence (AI) is going to find its way into just about everything, but that doesn't mean that every company deploying AI into its products is a great investment. Two companies that do look like they could uniquely benefit from the AI revolution are Atlassian (TEAM -9.56%) and Cloudflare (NET 1.44%). Here's why.
Atlassian
Software companies are racing to add AI capabilities to their products. Atlassian, best known for Jira and Confluence, is no different. Atlassian Intelligence, the company's virtual assistant that's currently in early access, has tremendous potential to help users be more productive.
While some AI features verge on gimmickry, Atlassian's AI assistant can tap into each customer's data to provide tailored output rather than generic results. For a customer that uses Confluence as a knowledge base, all that institutional data can be used to drive the AI assistant throughout Atlassian's product suite.
Beyond making Atlassian's products more useful, AI features can help accelerate the company's transition to the cloud. Atlassian is in the middle of shifting from software licenses to subscription software. While the company is having success migrating existing customers, AI features built into the cloud versions of its software could accelerate this process. "In the near term, customers are considering fast-tracking their moves to the cloud so they can take advantage of these powerful capabilities," the company said in its most recent shareholder letter.
While moving customers to the cloud can hurt profits in the short term as revenue gets spread out over time, replacing license and maintenance revenue with recurring subscription revenue should ultimately make Atlassian's results more predictable. Atlassian may also have an easier time cross-selling cloud versions of its software, particularly since the company's products work well together.
Despite a tough macroeconomic backdrop, Atlassian is still growing at an impressive pace. Revenue grew by 24% year over year in the latest quarter, and the company grew its free cash flow at an even faster rate. While growth is being pressured by a lower willingness among customers to expand spending and a slowdown in converting free customers, the AI features Atlassian is working on could help change those customers' minds.
Cloudflare
Cloudflare's developer platform, which includes various serverless computing products, has the potential to be a major player in the AI inference market. Training AI models requires powerful AI accelerators, but running those models can often be done on lesser hardware. "We are continuing to invest in this area and believe that we are uniquely positioned to win the inference market, which we believe will be substantially larger than the AI training market," said Cloudflare CEO Matthew Prince during the latest earnings call.
Cloudflare customers can run machine learning models directly on the company's edge network with Constellation, which is currently in private beta. Pre-trained models as well as models trained by customers are fair game, although there are limits on the model size. AI tasks like text translation, sentiment analysis, image classification, and question answering can all be done on Cloudflare's network.
Beyond running AI workloads, Cloudflare can win business from AI companies that need vast quantities of inexpensive storage with minimal bandwidth costs. Cloudflare's R2 object storage product is a perfect match for storing AI-generated images. While bandwidth costs on a traditional cloud platform like Amazon Web Services can quickly get out of hand, Cloudflare doesn't charge for bandwidth at all.
It's still early days for Cloudflare's AI business. By tapping into demand for running AI inference tasks quickly and cheaply, as well as storing AI-generated content economically, Cloudflare can potentially accelerate growth for its developer platform. Cloudflare's ability to rapidly launch new products on top of its existing platform is tailor-made for the rapidly evolving AI market, and it's a reason why it's an AI stock to watch.
