Artificial intelligence (AI) is revolutionizing the technology landscape. Its potential to improve productivity recently led JPMorgan Chase CEO Jamie Dimon to write, "We are completely convinced the consequences will be extraordinary and possibly as transformative as some of the major technological inventions of the past several hundred years." He specifically mentioned the discovery of electricity and the invention of the internet.
Against that backdrop, investors have been ploughing money into chipmaker Nvidia (NVDA +2.59%), a sensible move given that its graphics processing units "underpin all of the most advanced AI systems, giving the company a market share estimated at more than 80%," according to The Wall Street Journal.
However, Nvidia shares have soared 480% since the beginning of 2023, and Wall Street analysts now see more upside in other AI stocks like CrowdStrike (CRWD 3.86%) and Snowflake (SNOW 8.42%). The median price estimates (and the implied upside) for those companies are as follows:
- Nvidia: $976.95 per share (15% upside).
- CrowdStrike: $400 per share (29% upside).
- Snowflake: $210 per share (36% upside).
Here's what investors should know about CrowdStrike and Snowflake.
NASDAQ: CRWD
Key Data Points
1. CrowdStrike
Cybersecurity specialist CrowdStrike delivered solid financial results in the fourth quarter. Sales increased 33% to $845 million and non-GAAP net income more than doubled to hit $0.95 per diluted share. The company also reported a gross retention rate of 98%, indicating that it kept the vast majority of its customers. Investors can expect similar momentum in the future.
Analysts at Morgan Stanley recently noted that CrowdStrike was one of only three enterprise software companies to guide for sales growth exceeding 30% this year. That speaks to the pressing demand for cybersecurity software that is both effective and operationally efficient. CrowdStrike checks both boxes. It is the market leader in endpoint security, one of the largest and fastest-growing market segments, and it's gaining share in other categories.
Specifically, in the fourth quarter, the company reported record revenue from its identity protection, cloud security, and security information and event management (SIEM) products. Management also highlighted early momentum with its data protection and IT operations modules.
I mention those products not only to explain the clout CrowdStrike has achieved, but also to highlight the breadth of its platform. Many enterprises rely on more than 60 security point products, according to CEO George Kurtz, so vendor consolidation has become a top priority. Using products from vendors typically translates into greater efficiency, simply because there are fewer systems to maintain, and CrowdStrike is ideally positioned to capitalize on that trend.
Finally, CrowdStrike has earned a reputation for industry-leading threat protection, in part because of excellence in artificial intelligence (AI). Kurtz recently told analysts that CrowdStrike has the "most effective and accurate AI models." That comment echoes what Frost & Sullivan analysts wrote in 2022: "CrowdStrike leads the industry with regard to the application of artificial intelligence/machine learning to endpoint security, as well as providing unparalleled prevention of malware and malware-free attacks."
Notably, CrowdStrike ranked No. 3 on the Fortune Future 50 list in 2023, an annual assessment of the world's largest companies based on long-term growth prospects. Wall Street expects the company to grow sales at 29% annually over the next five years. That consensus estimate makes its current valuation of 24.7 times sales seem reasonable. Investors should consider buying a small position in this growth stock today.
NYSE: SNOW
Key Data Points
2. Snowflake
Data analytics specialist Snowflake reported solid financial results in the fourth quarter. Its customer count rose 22% and the average existing customer spent 31% more. In turn, revenue increased 32% to $775 million and non-GAAP net income more than doubled to reach $0.35 per diluted share. But guidance narrowly missed expectations and CEO Frank Slootman announced his retirement. That alarmed investors and caused shares to tumble 20% following the report.
However, the investment thesis remains unchanged. The Snowflake Data Cloud consolidates workloads, such that clients can store and analyze information, develop and manage machine learning models, and build data-driven applications from a single platform. The platform also runs across all three major public clouds, including Amazon Web Services, Microsoft Azure, and Alphabet's Google Cloud. None of those vendors afford customers the same flexibility.
Collectively, Snowflake has earned a strong market presence due to its ability to consolidate workloads and support multiple clouds. Indeed, Forrester Research recently recognized its leadership among cloud data warehousing platforms, noting that Snowflake has outpaced its peers in terms of innovation. Snowflake also ranked No. 1 on the Fortune Future 50 List for 2023.
One particularly exciting growth opportunity is artificial intelligence. To quote new CEO Sridhar Ramaswamy, "Data is the fuel for AI, making it essential to establishing an effective AI strategy." Snowflake recently announced Cortex, a service that lets clients develop generative and predictive AI applications on its platform. Cortex includes large language models for translation, sentiment detection, and text summarization, as well as machine learning models for forecasting, anomaly detection, and data classification, all of which streamline the creation of AI applications.
Going forward, the data analytics market is forecasted to grow at 27% annually through 2030. Wall Street analysts believe that tailwind will drive sales growth of 25% annually for Snowflake. Against that consensus estimate, the current valuation of 18.1 times sales seems reasonable. To add context, Snowflake is essentially trading at its cheapest price-to-sales multiple in history, which arguably means there has never been a better time to buy this growth stock.
