The light bulb. The telephone. The internet. All of these inventions changed the world. And all of them made their share of millionaires in the process.
Now comes artificial intelligence (AI). And while it remains to be seen how, and to what extent, AI will change the world, it does seem clear that AI is poised to revolutionize numerous industries.
With all that in mind, it brings up question: What companies stand at the forefront of AI technology, and how can investors capitalize on this next technological revolution? Here are my top three choices.
Image source: Getty Images.
Alphabet
With its broad array of consumer-facing applications, Alphabet (GOOG 0.20%)(GOOGL 0.41%) is already a leading AI stock. In fact, it's likely that you've already interacted with one of the company's AI-enabled features today. Google Search, Google Maps, and Google News all rely on AI-powered algorithms.
NASDAQ: GOOG
Key Data Points
Furthermore, many other Google-branded applications already have seamlessly integrated AI features. Gmail boasts a Smart Compose feature that completes users' emails. Thanks to machine learning and natural language processing, Google Assistant can understand human voices, and Google Lens' Translate feature can help you read a menu in Italian -- even if you don't speak a word of the language.
Thanks in part to these AI features, Alphabet is a stock market juggernaut. Consider these financial highlights:
- The company boasts a massive $1.7 trillion market cap -- making it the U.S.' third-largest publicly traded company.
- Its $297 billion in annual revenue ranks eighth and is growing at an annual rate of 11%.
- Alphabet's free cash flow (net cash from operations-capital expenditures) has risen at a compound annual growth rate (CAGR) of 28% over the last five years.
GOOG Free Cash Flow data by YCh4arts
Moreover, Alphabet shares are up 164% over the same five-year period -- meaning a $10,000 investment in late 2018 would be worth more than $26,000 today.
To sum up, Alphabet is an AI giant, with a strong financial track record that's likely to continue making millionaires for many years to come.
CrowdStrike
Another AI stock poised to change the world is CrowdStrike (CRWD 3.86%). While AI may be new, theft is not. For thousands of years, humans have contrived to steal from one other. Now, thanks to the digital age, it's never been easier for crooks to steal in the blink of an eye. As a result, the demand for cybersecurity is booming.
NASDAQ: CRWD
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CrowdStrike estimates that its total addressable market (TAM) now stands at $76 billion, up from $25 billion in 2019. What's more, the company estimates that its TAM should grow to $158 billion by 2026, thanks to organic growth and planned new offerings.
The company's cloud-native, AI-led cybersecurity modules monitor and protect its clients' systems thanks to machine learning algorithms that filter through massive amounts of data, looking for anomalies or potential threats. In addition, the company's AI can run advanced threat simulations. These "drills" stress the security systems, without causing actual harm, thus preparing the system for actual threats. The goal is to prevent expensive data breaches before they happen, saving clients money and preventing embarrassing reputational harm.
Financially, CrowdStrike remains a young, growth-oriented stock with a great deal of potential. Revenue is growing extremely fast, at a rate of 37% year over year. Moreover, the company does generate positive free cash flow.
However, shares remain expensive. CrowdStrike stock trades at a price-to-sales ratio (P/S) of 19. That's very high, even for a cybersecurity stock. Consider this: Among nine top cybersecurity stocks, CrowdStrike is the most expensive from a P/S ratio perspective. And, in many cases, it's far more expensive than its competitors' stock.
CRWD PS Ratio data by YCharts
Yet, for growth-oriented investors, CrowdStrike's potential remains attractive, despite the price. After all, AI is set to transform the world, and CrowdStrike, with its best-in-class AI cybersecurity, looks prepared to revolutionize its industry.
Nvidia
Yes, it's true, with an astounding 227% year-to-date return, the cat is out of the bag when it comes to Nvidia (NVDA +2.59%). Nevertheless, just because the stock has enjoyed a massive run this year doesn't mean Nvidia's hot streak is over -- far from it.
NASDAQ: NVDA
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That's because the company produces the most sought-after graphics processing units (GPUs) around. These high-powered chips are used to run the most cutting-edge AI applications today. In fact, a single Nvidia H100 chip often sells for more than $25,000, and today's state-of-the-art supercomputers and AI applications often require dozens, hundreds, and in some cases, even tens of thousands of these chips to be strung together.
Moreover, while competitors like AMD and Intel are racing to develop their own AI-focused GPUs, Nvidia should maintain its competitive advantage within the AI space for a while. Developers are happy with the performance and reliability of Nvidia chips; they're also familiar with Nvidia's software ecosystem -- the set of tools developers may use when working with its GPUs.
As a result, Nvidia's revenue is going through the roof. In its most recent quarter (the three months ending on Oct. 29, 2023), Nvidia's revenue swelled to $18.1 billion, up an astounding 206% from a year earlier. Data center revenue exploded higher by 279%. Similarly, earnings per share (EPS) mushroomed to $3.71, up twelvefold from the prior year
Image source: The Motley Fool.
Needless to say, this sort of growth can't go on forever. That said, analysts do expect more eye-popping numbers next year. Wall Street expects Nvidia to grow sales by more than 55% in 2024, to $83 billion. EPS are forecast to rise to $18.38 -- an expansion of 66%.
In short, Nvidia is the king when it comes to AI. Or as Nvidia co-founder and CEO Jensen Huang put it on the company's earnings call: "Nvidia GPUs, CPUs, networking, AI foundry services and Nvidia AI Enterprise software are all growth engines in full throttle."
Indeed. And with those growth engines in full throttle, Nvidia is ready to make lots of millionaires in the years to come.
