Investing in AI (artificial intelligence) stocks has gained momentum in recent years. As companies across industries increasingly embrace AI technologies to improve productivity, cost efficiency and informed decision-making, AI will remain a key investment theme in the years ahead.
However, not all companies investing in or deploying AI-based technologies have equal prospects. Companies that are leaders in advanced data storage, data analytics, deployment of AI-based platforms, cybersecurity, and machine learning technologies are better positioned to demonstrate significant growth in the future. Not surprisingly, stocks of these companies can generate robust returns for long-term investors.
According to Wall Street analysts, there are two stocks that could fit this profile: CrowdStrike (NASDAQ: CRWD) And Nvidia (NASDAQ: NVDA)Let’s take a deeper look at what analysts see in these two companies in terms of long-term success, which should pay off for investors.
CrowdStrike
Cybersecurity specialist CrowdStrike, once a stock market darling, appears to have fallen out of favor after a faulty software update caused a massive global IT outage on July 18, 2024. Although CrowdStrike fixed the error overnight, the outage of multiple mission-critical systems worldwide appears to have affected overall investor sentiment.
Despite the public faux pas, Oppenheimer analyst Ittai Kidron maintained a “Buy” rating on the stock and set a price target of $450, implying 69% upside potential from Monday’s close. Many analysts remain bullish on the company, with an average price target of $337, implying 27% upside potential.
Wedbush Securities estimates that less than 5% of the company’s customers will switch to top competitors, which would impact revenues by approximately $150 million in fiscal 2025. While the reputational damage could negatively impact business activity in the short to medium term, the long-term impact could be minimal. This can be attributed primarily to the company’s strong gross retention rates (a measure of customer loyalty) of over 98% prior to the incident.
CrowdStrike’s multi-modular AI-powered Falcon platform serves as a one-stop-shop for customers’ cybersecurity needs, such as endpoint security, identity protection, cloud security, observability, threat intelligence, and data protection. The Falcon platform is scalable and easy to deploy, characteristics that have made it deeply ingrained in their customers’ day-to-day operations. Furthermore, Falcon also benefits from network effects as the increasing adoption of more modules helps secure more threat data to enrich the AI-powered Threat Graph. This helps in better training of the Falcon platform. All these aspects have resulted in high switching costs for CrowdStrike’s customers.
The company is scheduled to report second quarter fiscal year 2025 results (ended July 31) today after the U.S. market closes, and investors will be watching closely to better understand the true severity of the impact the software and process update bug has had on the company’s customer base and financials. The stock currently trades at nearly 20x trailing twelve-month (TTM) revenue, well below the historical 5-year average EPS ratio of nearly 30x. Given the company’s robust fundamentals and reasonable valuation, this appears to be a good entry point for astute, risk-tolerant investors.
Nvidia
Semiconductor giant Nvidia is also scheduled to report earnings for the second quarter of fiscal 2025 (ending July 28) today after U.S. markets close. The stock has already risen nearly 155% so far in 2024 and is expected to climb even higher in the coming quarters.
One of the most bullish estimates for Nvidia’s stock price comes from Beth Kindig, CEO and Lead Technology Analyst at I/O Fund, who predicts that the company’s market cap will hit $10 trillion by 2030 or even sooner, implying nearly 218% upside potential. The analyst expects the company’s full-stack AI platform, accelerated product roadmap, and the solid moat created by the company’s CUDA software ecosystem to be key drivers for the stock.
Nvidia is seeing an explosion in demand for its AI chips and systems. Consumer internet companies, cloud providers, and enterprises across all industries and geographies are increasingly using Nvidia’s AI chips, networking solutions, and AI-optimized software in data centers and generative AI applications.
Subsequently, Nvidia’s data center revenue grew 427% year over year in the first quarter of fiscal 2025 to $22.6 billion. Demand for the company’s next-generation H200 and Blackwell architecture chips is expected to outpace demand through 2025, giving Nvidia significant pricing power in the coming months. The company is also exploring the use of liquid cooling solutions for data centers, which could result in dramatic energy savings. With the global data center market estimated to be worth $416.10 billion by 2024, Nvidia appears well-positioned to capitalize on this opportunity.
Additionally, Nvidia is also gearing up to expand its total addressable market. The company expects Sovereign AI (government initiatives to develop domestic AI capabilities) to generate billions of dollars in revenue by 2024, up dramatically from nothing the previous year. The company also expects autonomous driving initiatives to continue to rapidly drive demand for AI chips and systems in the coming quarters.
Nvidia trades at 39 times trailing-twelve-month revenue, far higher than the historical five-year average of around 24. Despite the expensive valuation, the company’s leadership in AI technology, robust financials and growing market opportunity make it an attractive pick now.
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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike and Nvidia. The Motley Fool has a disclosure policy.
2 AI Stocks You Need to Buy Before They Surge 68% and 218%, According to Select Wall Street Analysts was originally published by The Motley Fool
