The news that Warren Buffett's Berkshire Hathaway sold 389 million of its Apple shares sent shock waves across the stock market. While one could argue that Buffett's Apple stake is still too large relative to Berkshire's overall portfolio, it was still a notable move by any measure.
The stock sale leaves Berkshire with over $271 billion in cash. Amid that move, Buffett's team introduced some new positions. It also invested considerable funds in short-term bonds, where they may stay for the foreseeable future. However, that still leaves the company open to finding more lucrative investments than Apple, and these artificial intelligence (AI) stocks could bring higher returns.
Does somebody have a case of "the Mondays"?
Jake Lerch (Monday.com): Let start with the basics -- what Monday.com (MNDY 4.95%) does.
In a nutshell, Monday.com provides organizations with cloud-based workflow management tools. Its systems can be custom-designed to integrate proprietary applications and use generative AI to drive operational efficiency. Moreover, the platform's ease of use is a major selling point. The system operates on a "no-code/low-code" principle in which little technical expertise is required to build time-saving workflows.
NASDAQ: MNDY
Key Data Points
Thanks to the popularity of its platform, Monday.com is attracting customers and business is booming. Almost all of Monday.com's revenue comes in the form of subscriptions -- a more steady and predictable form of revenue compared to one-off sales.
MNDY Revenue (Quarterly) data by YCharts
In its most recent quarter (ended June 30, 2024), Monday.com reported revenue of $236 million, up 34% year over year. What's more, large customers (those paying more than $50,000 in annual recurring revenue) increased 43% from a year earlier. Finally, and perhaps most importantly, the company crossed a key threshold for any growth stock -- GAAP profitability.
Monday.com CFO Eliran Glazer summed up the quarter like this: "Most notably, we were able to deliver exceptional efficiency in Q2, achieving our first quarter of GAAP operating profitability. These results demonstrate not only our highly effective execution, but the strong demand we continue to see even through a challenging macroeconomic environment."
Granted, Monday.com, like all growth stocks, comes with certain risks. The company has turned in a profitable quarter -- but it was a very meager profit of only $1.8 million. As the company continues to focus on growing revenue, it's possible that profit will take a backseat. In addition, an economic downturn -- or a recession -- would spell bad news for the company.
However, for many investors, Monday.com is a stock worth considering thanks to its rapidly growing customer base, fast revenue growth, and newfound profitability.
A rapidly growing, financially strong business at a jaw-droppingly low price
Justin Pope (SentinelOne): SentinelOne (S 5.41%) is a rising star in the cybersecurity field. The stock was building momentum after CrowdStrike's outage fiasco until recent volatility among small- and mid-cap stocks dragged shares from $30 back into the low $20s. But the stock's gains were no fluke; SentinelOne is a compelling long-term investment for shareholders looking for growth at a bargain price. Let's unpack this.
SentinelOne sells cybersecurity solutions via its Singularity Platform. It uses artificial intelligence (AI) instead of human agents to identify and deal with potential threats. The result is proactive, autonomous security that performs among the best products on the market. SentinelOne routinely receives high scores in third-party evaluations and has an average of 4.7 stars out of five on Gartner's Peer Insights, which tracks feedback from verified users. SentinelOne offers high-octane growth momentum, including 39.7% year-over-year revenue growth in its latest quarter.
NYSE: S
Key Data Points
The company's ability to launch and sell new products is impressive. SentinelOne recently launched a data lake product and AI Purple, a generative AI that assists users with security operations. Emerging products contributed 40% of new bookings in SentinelOne's latest quarter, including data lake sales growing over 100%.
Growth is great, but SentinelOne has lacked profits, which is a fair criticism and arguably what has held the stock back these past couple of years. But it is making tremendous strikes there, too. The company's free-cash-flow margin turned positive last quarter, jumping to 18% of sales. The company is well-funded, with $773 million in cash against no debt. Investors shouldn't worry about SentinelOne's durability, even in a potential recession.
The stock's cheap valuation pulls the investment pitch together. SentinelOne has lagged behind its cybersecurity peers, including CrowdStrike. CrowdStrike's current valuation, an enterprise value-to-sales ratio of 15, exceeds SentinelOne's ratio of under 8, even after CrowdStrike's recent black eye. SentinelOne's valuation could stay where it is, and investors are still poised to make out, given the company's rampant growth and improving profitability.
SentinelOne looks like a no-brainer in a market that's lacking bargains these days.
Despite massive gains, this hardware stock is a huge bargain
Will Healy (Super Micro Computer): One of the more notable AI stocks to emerge over the last few years is Super Micro Computer (SMCI 0.73%). The manufacturer of servers and other hardware spent most of its 30-year history in obscurity, with few outside of the industry knowing of the company.
Despite launching its IPO in 2007, the stock did not take off until the pandemic, when the sudden need to move to the cloud stoked demand for its servers. However, what catalyzed the massive surge in the stock was partnering with Nvidia and placing that company's AI chips in its servers. These industry trends helped lead to stock gains of around 3,500% over the last five years and a coming 10-for-1 stock split.
NASDAQ: SMCI
Key Data Points
However, what should attract the attention of Buffett and other bargain hunters is the gain, which was as high as 6,900% at Supermicro's peak closing price on March 13. This means that the stock has lost about 50% of its value over the last five months.
The decline was likely a reaction to the rapid rise in the stock price, particularly over the last year. Despite the sell-off, net income rose 89% yearly to $1.2 billion in fiscal 2024 (ended June 30) amid unprecedented demand for its AI servers.
Moreover, between the rising profits and falling stock price, its valuation has become reasonable by just about any measure. Although the P/E ratio briefly topped 90 in March, its earnings multiple is now 30, a level barely above the average S&P 500 earnings multiple of 28.
Furthermore, while the company did not forecast net income for fiscal 2025, consensus analyst estimates call for a 58% increase in net income, a bullish sign for the stock.
Indeed, with its rapid but slowing growth rates, investors may not bid the stock back to 90 times earnings. But with income growth above 50%, Supermicro is on track for rising profits and multiple expansion.
