There's little doubt that lottery fever is sweeping the country. The most recent winner of the multi-state Powerball will take home a jackpot worth an estimated $1.3 billion, yet the vast majority of those who play never win. That's unfortunate, because players laid out more than $100 billion last year on state-run lotteries, yet the odds of winning are stacked against you -- roughly 1 in 292 million for Powerball. In fact, you have a better chance of finding a pearl in an oyster (10,000 to 1) than taking home the jackpot. But there's a better way to secure your future.
Steadily investing in the stock market over a period of years can lead to financial success. The S&P 500, the most widely followed stock market index, has returned 10% annually, on average, going back five decades, though it hasn't all been in a straight line.
Recent advances in the field of artificial intelligence (AI) represent one of the biggest opportunities in decades, as the technology can automate many mundane tasks, helping increase worker productivity. While forecasts vary wildly, even the most conservative estimates are mind-blowing. The market for generative AI will climb to $1.3 trillion by 2032, a compound annual growth rate of 42% over the coming decade, according to a report issued by Bloomberg Intelligence.
Let's look at two companies that are leveraging the AI opportunity now.
Image source: Getty Images.
Alphabet
Alphabet (GOOGL -3.37%) (GOOG -3.33%) has been deploying AI algorithms to support its business objectives for more than 20 years. The company developed the Google Brain in 2011, conducting groundbreaking research in neural networks and deep learning. It was also a pioneer in autonomous driving technology thanks to the Google self-driving car project, which eventually became Waymo.
Most important, however, were the algorithms the company developed that helped the company become the world's leading search engine, with an estimated 91% of the market, according to web traffic analytics firm StatCounter.
Alphabet isn't resting on its laurels and is building on its decades of success. At its Cloud Next event last week, the company introduced a host of AI-powered enhancements that show the company is far from an AI has been.
Alphabet unveiled the latest innovations for its Gemini AI, its multimodel AI system, which can process text, audio, video, and computer code. These include:
- Vertex AI agent builder, which helps users develop custom conversational agents.
- Gemini Code Assist, which helps streamline the code writing and debugging process.
- Help Me, a feature in Gmail that helps create and polish rough drafts.
- Tools in Sheets to simplify the creation of new spreadsheets and get notified of changes.
- New support in Doc for tabs.
- Upgrades to Gemini's image creator Imagen.
These are just a few of the ways Alphabet is integrating AI into its existing portfolio of products and services.
Furthermore, thanks to its position as the third largest of the big three cloud infrastructure providers, Google Cloud is well-positioned to offer its growing suite of AI services to customers. Cloud revenue grew 26% year over year in the fourth quarter, representing 10% of the market.
Needham analyst Laura Martin suggests that AI will be the catalyst that catapults Alphabet's market cap above $3 trillion. Not only do the major cloud providers have the "lowest cost structures and first-mover advantages," but they will benefit as the "average lifetime value per cloud customer is about to skyrocket" thanks to AI.
Finally, at just 27 times trailing-12-month earnings, Alphabet sells at a discount to the multiple of 28 for the S&P 500, which is a bargain given its potential.
CrowdStrike
Another company built on a foundation of AI is cybersecurity specialist CrowdStrike (CRWD -0.01%). The company's cloud-native platform was designed with AI in its DNA, as its algorithms learn and improve with each new threat. CrowdStrike's AI-powered system not only detects known threats but helps predict and neutralize future attacks.
Don't take my word for it. CrowdStrike was cited as a leader in Gartner's 2023 Magic Quadrant for endpoint protection, cited highest for its completeness of vision and ability to execute. The company was also named a leader in cloud workload security in the Forrester Wave Report for Q1 2024, which ranked CrowdStrike highest in strategy, assigning the highest possible scores for vision and innovation. CrowdStrike's users agree, as it was the only company selected as a Customer's Choice in Gartner's 2024 Peer Insights survey.
The company isn't just earning industry accolades for its AI-powered threat protection. CrowdStrike recently signed multiple eight-figure deals with a leading hyperscale cloud service provider and a hypergrowth AI company. This suggests that companies on the cutting edge of AI understand the value of CrowdStrike's services. That helped its cloud security segment generate record net new annual recurring revenue, which grew 200% year over year.
In the fourth quarter, CrowdStrike's revenue grew 33% year over year, fueled by subscription revenue that also grew 33%. At the same time, adjusted net income grew 112% as the company ramped up its profitability.
It's worth noting that CrowdStrike isn't cheap, as the stock is selling for 77 times forward earnings and 14 times forward sales, but that fails to factor in the company's rapidly scaling growth. CrowdStrike closed out 2024 with $3.4 billion in ARR, but the company's goal is to grow that to $10 billion over the coming five to seven years. If management can achieve that benchmark, it suggests CrowdStrike could triple its sales during the same timeframe, making its current price a bargain.
