Artificial intelligence (AI) is revolutionizing the technology landscape. The potential to improve productivity has recently led JPMorgan Chase CEO Jamie Dimon writes: “We fully believe the consequences will be extraordinary and potentially as transformative as some of the most important technological inventions of the past few hundred years.” He specifically mentioned the discovery of electricity and the invention of the Internet.
Against that backdrop, investors have poured money into the chipmaker Nvidia (NASDAQ: NVDA)a wise move considering that graphics processing units “are the foundation for all 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 are up 480% since the start of 2023, and Wall Street analysts are now seeing more upside potential in other AI stocks like CrowdStrike (NASDAQ: CRWD) And Snowflake (NYSE: SNOW). The average price estimates (and implied increase) for these companies are as follows:
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Nvidia: $976.95 per share (15% increase).
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CrowdStrike: $400 per share (29% increase).
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Snowflake: $210 per share (36% increase).
Here’s what investors need to know about CrowdStrike and Snowflake.
1. CrowdStrike
Cybersecurity specialist CrowdStrike delivered solid financial results in the fourth quarter. Revenue rose 33% to $845 million and non-GAAP net income more than doubled to $0.95 per diluted share. The company also reported a gross retention rate of 98%, indicating that it retained the vast majority of its customers. Investors can expect similar momentum going forward.
Analysts at Morgan Stanley recently noted that CrowdStrike was one of only three enterprise software companies to achieve more than 30% revenue growth this year. This meets the urgent need for cybersecurity software that is both effective and operationally efficient. CrowdStrike checks both boxes. It is the leader in endpoint security, one of the largest and fastest growing market segments, and is gaining market share in other categories.
Specifically, the company reported record revenue from its identity protection, cloud security and security information and event management (SIEM) products in the fourth quarter. Management also highlighted early momentum with the data protection and IT operations modules.
I mention these products not only to explain the influence CrowdStrike has achieved, but also to highlight the breadth of its platform. According to CEO George Kurtz, many enterprises rely on more than 60 security point products, making vendor consolidation a top priority. Using vendor products typically translates into greater efficiency simply because fewer systems need to be maintained, and CrowdStrike is ideally positioned to capitalize on that trend.
Finally, CrowdStrike has built a reputation for industry-leading threat protection, thanks in part to 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 is an industry leader in the application of artificial intelligence/machine learning to endpoint security, providing unparalleled malware prevention and malware-free attacks.”
Notably, CrowdStrike was number 3 on the list 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 revenue 29% annually over the next five years. That consensus estimate makes the current valuation of 24.7 times sales seem reasonable. Investors should consider buying a small position in this growth stock today.
2. Snowflake
Data analytics specialist Snowflake reported solid financial results in the fourth quarter. Customer numbers increased by 22% and the average existing customer spent 31% more. In turn, revenue rose 32% to $775 million and non-GAAP net income more than doubled to $0.35 per diluted share. But the guidance narrowly missed expectations and CEO Frank Slootman announced his retirement. That alarmed investors and caused shares to plummet 20% after the report.
However, the investment thesis remains unchanged. The Snowflake Data Cloud consolidates workloads so customers can store and analyze information, develop and manage machine learning models, and build data-driven applications from a single platform. The platform also runs on all three major public clouds, inclusive Amazon Web services, Microsoft Azure, and Alphabet‘s Google Cloud. None of these suppliers offer customers the same flexibility.
Collectively, Snowflake has established 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 surpassed its peers in innovation. Snowflake was also number 1 on the list Fortune Future 50 list for 2023.
A particularly exciting growth opportunity is artificial intelligence. To quote new CEO Sridhar Ramaswamy, “Data is the fuel for AI, making it essential for building an effective AI strategy.” Snowflake recently announced Cortex, a service that allows customers to develop generative and predictive AI applications on its platform. Cortex includes major 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 expected to grow at an annual rate of 27% until 2030. Wall Street analysts believe the tailwinds will boost Snowflake’s revenue growth by 25% annually. Against this consensus estimate, the current valuation of 18.1 times sales seems reasonable. To add context, Snowflake is essentially trading at the cheapest price-to-sales ratio in history, which arguably means there’s never been a better time to buy this growth stock.
Should you invest $1,000 in CrowdStrike now?
Consider the following before purchasing shares in CrowdStrike:
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennevine holds positions at Amazon, CrowdStrike and Nvidia. The Motley Fool holds positions in and recommends Alphabet, Amazon, CrowdStrike, JPMorgan Chase, Microsoft, Nvidia, and Snowflake. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Forget Nvidia: 2 Artificial Intelligence (AI) Stocks With More Upside to Buy Now, According to Wall Street, originally published by The Motley Fool
