For the past few years, Wall Street has witnessed several hot investment trends -- be it cannabis, the metaverse, cryptocurrency, blockchain, cloud computing, and now artificial intelligence (AI). While some have lost steam, others seem to be dramatically impacting our daily lives.
AI falls into the latter category. With enterprises investing heavily in AI technologies, the world now seems to be on the cusp of a transformational technological leap. Investors keen on riding this secular trend can consider purchasing stakes in high-quality AI stocks such as Advanced Micro Devices (AMD 2.37%) and CrowdStrike (CRWD 2.03%). Here's why.
Advanced Micro Devices
After a lackluster performance in 2022, shares of semiconductor giant Advanced Micro Devices have made a strong recovery and are up by nearly 100% so far in 2023. However, there are still many reasons the stock could go even higher in the coming months.
First, AMD's data center segment reported an impressive 21% sequential growth in revenue to $1.6 billion thanks to the widespread adoption of its third- and fourth-generation Epyc-brand processors by enterprises, cloud computing infrastructure providers, and AI infrastructure providers. According to Mercury Research, in the third quarter the company witnessed improvements of 5.8 percentage points in unit share and 1.7 percentage points in revenue share in the global server central processing unit (CPU) market.
AMD has further expanded its Epyc server CPU portfolio by introducing more efficient Genoa and Bergamo variants for certain complex workloads. Hence, the company stands a solid chance to remain a dominant presence in the server CPU market.
Second, AMD is also focusing on the early ramp of its next-generation Instinct MI300 graphics processing units (GPUs), optimized for high-performance computing and AI workloads in the cloud. The company expects its data center GPU revenue to be $400 million in the fourth quarter and $2 billion in 2024, driven mainly by the increasing adoption of MI300 GPU accelerators in AI and machine learning applications.
With demand for AI chips far outpacing supply, customers may choose the MI300 GPU as an alternative to Nvidia's famous H100 chip. AMD has also enhanced performance and added several features to its ROCm (Radeon Open Compute) software platform, which can be used to optimally program MI300 GPUs for complex workloads. Against this backdrop, MI300 GPUs can emerge as AMD's major future growth catalyst.
Lastly, the PC market seems to be on the verge of recovery, starting in the fourth quarter and continuing throughout 2024. The growth in the PC market is expected to be partly driven by increasing demand for AI processors and AI-enabled PCs.
AMD is well-positioned to benefit from this industrywide trend thanks to the robust uptake of its Ryzen 7000 series PC processors, including Ryzen AI on-chip accelerators. All these tailwinds make AMD an attractive AI stock now.
CrowdStrike
Leading endpoint security player CrowdStrike has come out with impressive third-quarter fiscal 2024 results (ended Oct. 31), with revenue and earnings surpassing consensus estimates and record free cash flow of $239 million. The company has also guided for a solid 35% year over year in revenue to $3.05 billion for the full fiscal 2024 -- an impressive feat at a time when enterprises have been scrutinizing their cybersecurity budgets. This highlights the resilience and growth potential of CrowdStrike, even in an environment marred by difficult macros and geopolitical tensions.
CrowdStrike's multi-modular Falcon platform (comprising 27 modules) has emerged as a major beneficiary of the increasing adoption of cybersecurity solutions -- considered mission-critical infrastructure across industries and sectors in the current digitized world. Besides endpoint security (which involves protecting devices and network access points from malicious actors), the Falcon platform offers other solutions, such as cloud security, identity protection, observability, threat intelligence, and data protection.
By catering to all the enterprises' cybersecurity needs with its highly scalable, easily deployable, and unified AI-driven Falcon platform, CrowdStrike has made its solutions essential to its clients' technology infrastructures, ensuring a sticky customer base. The company has also been quite successful in cross-selling additional Falcon modules to existing clients. This is evident, considering 63% of the subscription customers were using five or more Falcon modules, up from 60% in the same quarter of the prior year.
CrowdStrike is also benefiting from a network effect. The company uses insights derived from its AI-driven Threat Graph (which processes trillions of cyberthreat-related data signals weekly) to train the Falcon platform, making it smarter and more intelligent in identifying and thwarting potential threats. A superior product attracts even more customers, meaning a bigger data pool for its Threat Graph. This virtuous cycle has been a solid positive for the company.
Cybersecurity companies are also investing heavily in generative AI technologies to analyze vast amounts of data with predictive models and identify and mitigate cyber risks. Canalys expects over 70% of businesses will use generative AI tools in their cybersecurity offerings in the next five years.
Unsurprisingly, CrowdStrike has also been integrating generative AI into its core cybersecurity offerings to enhance its threat detection and response mechanisms further. In May, the company introduced Charlotte AI, a generative AI-powered virtual cybersecurity analyst, to help users of all skill levels detect and remediate cyberthreats effectively.
With solid brand positioning, improving financials, and impressive AI initiatives, CrowdStrike seems to be a compelling stock to buy now.
