Share prices of Nvidia (NVDA 6.18%) and CrowdStrike (CRWD 2.03%) soared more than 1,000% and 400%, respectively, over the last four years. Those monster gains make the companies stock-split candidates in 2024, but both are worthwhile investments whether or not those splits happen.
A survey from Morgan Stanley identified artificial intelligence (AI) as the most highly prioritized IT spending category in 2024. Nvidia and CrowdStrike are both positioned to benefit as businesses lean into automation. The survey also identified security software as the third-largest IT spending priority this year. That means endpoint security specialist CrowdStrike actually sits at the intersection of two powerful trends.
Here's why long-term investors should consider buying these two monster growth stocks.
1. Nvidia
Nvidia is an accelerated computing company. Its graphics processing units (GPUs) are used to render ultra-realistic visual effects in video games and other multimedia. They are also used to accelerate processing for compute-intensive data center applications like artificial intelligence. Nvidia dominates both markets. Its GPUs account for more than 95% of workstation graphics processors, and 80% to 95% of machine learning chips as measured by sales.
Nvidia has extended its ability to monetize AI with data center networking equipment and central processing units, both purpose-built for AI. It has also delved into cloud infrastructure and subscription software services with DGX Cloud, a platform that streamlines AI application development across use cases like video analytics, autonomous machines, and intelligent avatars. DGX Cloud also supports the development of generative AI applications.
The ability to blend hardware, software, and services gives Nvidia an immense competitive advantage.
"Nvidia stands out, in our view, not only because it participates in so many parts of the dynamic AI economy, but because it has synthesized its offerings into a first-of-its-kind AI-as-a-service delivered through the cloud," Argus analyst Jim Kelleher recently wrote.
Nvidia reported stunning results in the third quarter. Its revenue jumped 206% to $18.1 billion on record data center sales, and non-GAAP net income increased sixfold to $10 billion due to margin expansion driven by pricing power and a mix shift toward more profitable data center products. Even so, Nvidia has hardly begun to tap what management sees as a $1 trillion addressable market.
Grand View Research forecasts that the GPU market will grow at an annualized rate of 28% through 2030, and the AI market is expected to grow at an annualized rate of 37% during the same period. Nvidia's sales growth should be somewhere between those figures, but its bottom line should grow more quickly as high-margin software and services account for an increasing share of its revenue.
Indeed, Wall Street expects Nvidia's earnings per share to grow by 81% annually over the next five years. In that context, its present valuation of 95.1 times earnings actually seems reasonable. Of course, the story would change quickly if Nvidia fails to meet those earnings growth expectations, but long-term investors comfortable with that risk should consider opening a small position in this stock today.
2. CrowdStrike Holdings
CrowdStrike is a cybersecurity software and services vendor. Its portfolio includes more than two dozen applications that cover several large security markets, playing into the growing demand for solutions that support vendor consolidation. Organizations are increasingly eager to reduce the costs and complexity of their cybersecurity systems by unifying the workflows on a single platform. CrowdStrike is ideally situated to benefit from that trend.
Its platform packs superior AI and provides unparalleled threat protection, according to consultancy Frost & Sullivan. Those selling points have helped the company earn a leadership position in several software verticals, including endpoint security, cloud security, and managed detection and response. That gives CrowdStrike access to unique data that improves its AI, creating a network effect that enhances its protection capabilities.
CrowdStrike reported solid financial results in the third quarter, though economic headwinds and pessimism continued to drag on business spending. Revenue increased 35% to $786 million on strong demand for endpoint security solutions, and there was encouraging momentum in cloud security, identity, and security operations products. The company also reported record GAAP net income of $27 million, its third consecutive quarter of GAAP profitability.
Rapid innovation has kept CrowdStrike on the cutting edge of security software for years, and the company is still steaming along. It recently announced new modules for IT automation, data protection, and exposure management. CrowdStrike also launched a beta version of Charlotte AI, a natural language assistant. Those products widen its addressable market and strengthen its status as a vendor consolidator.
Wall Street expects annualized sales growth of 30% over the next five years. Admittedly, the stock still looks pricey at 27.8 times sales, but patient investors comfortable with volatility should also feel comfortable opening a small position today. CrowdStrike is a leader in several cybersecurity markets, and demand for its software and services should trend higher in the years ahead, given the rising costs and prevalence of cybercrime. That should translate into market-beating returns for patient shareholders.
