Artificial intelligence (AI) is already touching almost every U.S. industry, but the technology is still in its early stages. Its contribution to the economy could ramp up significantly over the next decade, adding somewhere between $7 trillion and $200 trillion in output, depending which Wall Street forecast you rely upon.
Cybersecurity companies use AI to help detect threats and automate incident response, which leads to better outcomes. Semiconductor companies, on the other hand, are designing the hardware developers need to train AI models and ensure they continue to improve.
Those two industries might be a great place for investors to park their money, and shares of SentinelOne (S 1.70%) and Micron Technology (MU 2.92%) are an excellent starting point. Here's why investors sitting on idle cash -- money they don't need for immediate expenses -- might want to allocate $120 to buy one share of each company (or more if they have the free cash available) and hold on for 10 years.
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1. SentinelOne
SentinelOne is a provider of cybersecurity software with AI and automation at its core. The rise of cloud computing means more businesses operate online, leaving them exposed to attacks that can originate from anywhere in the world and strike at any time of the day. Not every employee can be a cybersecurity expert, so automated threat detection and incident response are increasingly important.
SentinelOne's Singularity platform is a comprehensive cloud, endpoint, and identity solution for businesses. Not only does it protect the entire cloud network, but it also guards the computers and devices used by employees. Given they have so much contact with the outside world through emails, phone calls, and messaging platforms, workers are often the most vulnerable part of any organization.
AI feeds into almost every segment of the Singularity stack, but SentinelOne released a new tool called Purple AI last year. It's a virtual assistant -- or chatbot -- that integrates with Singularity to reduce alert fatigue among human security managers. A report by Palo Alto Networks found that 93% of security operations centers within companies still rely on human-led processes to some degree, and 23% of security alerts are left uninvestigated due to the sheer workload.
Purple AI can rapidly analyze incidents and present the findings to management teams, saving them hours of manual investigative work. Plus, if a new threat arises in the corporate world, Purple AI can be prompted to scan specific assets or even the entire network for signs of its presence.
SentinelOne serves over 11,500 businesses, and in the recent fiscal 2024 third quarter (ended Oct. 31, 2023), it generated $164 million in revenue, which increased 42% year over year. That was a faster revenue growth rate than competitors like CrowdStrike and Palo Alto Networks (although SentinelOne is a much smaller provider).
SentinelOne stock trades at $26.34 as of this writing, which is 65% below its all-time high reached during the tech frenzy in 2021. Investors were a little irrational back then because trillions of dollars in pandemic-era stimulus were coursing through the financial system. The subsequent drop in SentinelOne stock has created an opportunity.
The company expects to deliver a record-high $616 million in revenue for the fiscal 2024 full year (ending Jan. 31), a forecast it increased following its strong Q3 result. That places its stock at a price-to-sales (P/S) ratio of just 12.8, which is cheaper than Palo Alto (16.3), and nearly 50% less expensive than CrowdStrike (24.5). This could be a great long-term entry point for investors.
2. Micron Technology
Micron is one of the world's leading producers of memory (DRAM) and storage (NAND) chips for computers, mobile devices, cars, and the data center. It's receiving less attention from investors than other chip giants like Nvidia and Advanced Micro Devices because they produce the glamorous graphics processing units (GPUs) responsible for developing AI. But DRAM and NAND are vital pieces of that story, so Micron shouldn't be overlooked.
Most AI models are developed, trained, and deployed in the cloud, and most cloud workloads are run through centralized data centers. Building an AI model requires substantial amounts of data, and GPU chips deliver the necessary computing power to train the model using that data. But GPUs require DRAM, which determines how fast that data can be sent and retrieved, and that has an enormous influence over the performance of the AI model.
Mid-last year, Micron launched a new data center memory chip called HBM3E that is capable of training AI models 30% faster and processing 50% more queries per day than competing hardware. Nvidia chose HBM3E to power its new H200 GPU, which is expected to dominate the industry upon its widespread release this year. That could lead to a substantial windfall for Micron.
But Micron is also preparing for a demand surge outside the data center. Computers and devices will soon be capable of processing AI workloads on-device, so the technology will be embedded into the entire user experience. Apple released its new iPhone 15 Pro with the A17 Pro chip, which is powerful enough to process AI. Similarly, AMD's Ryzen AI chips are powering 50 different notebook computer designs, and the company is working with Microsoft to develop a new version of Windows to take full advantage of that powerful hardware.
Micron says AI-enabled computers will require 3 to 5 times more memory than their predecessors, which should lead to substantially more revenue for the company going forward.
Micron's annual revenue plunged by 50% during fiscal 2023 (ended Aug. 31) on the back of challenging economic conditions that crimped consumer spending. But the first quarter of fiscal 2024 (ended Nov. 30) revealed an upswing. Micron's total revenue increased by 16% year over year, but its compute and networking segment saw whopping growth of 45% sequentially, thanks to demand for AI-related data center chips.
Micron CEO Sanjay Mehrotra expects improved financial performance throughout 2024, as the worst of the pricing and inventory challenges that plagued the company in fiscal 2023 appear to be in the rearview mirror. This could be a great time for investors to buy Micron stock as it enters a potentially long-term upswing on the back of AI demand.
