The rise of artificial intelligence (AI) is on track to be this century's most revolutionary technology trend. Massive breakthroughs in AI have been taking place seemingly overnight lately, and this tech shift remains in the very, very early stages. But despite the incredible promise of this budding technology movement, macroeconomic pressures continue to shape trading for the market at large, and the tech-heavy Nasdaq Composite index remains down 27% from its high.
For investors looking to take part in the AI revolution, the current bear market for growth stocks presents an opportunity. The next bull market is somewhere on the horizon, and building positions in top artificial intelligence companies could be a path to scoring huge wins over the long term. With that in mind, two Motley Fool contributors have some thoughts on why CrowdStrike (CRWD -3.94%) and Alphabet (GOOGL -1.34%) (GOOG -1.50%) look like great buys right now.
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CrowdStrike: An AI-driven network effect creating better cybersecurity
Keith Noonan: CrowdStrike was a first mover in applying AI technologies to the hardware-oriented cybersecurity market, and its frontrunner position is leading to mounting competitive advantages. The company's AI-powered Falcon platform learns and adapts as it encounters new threats, and this means that its customers benefit as new clients join the platform and use the software to fend off cyberattacks. Falcon's "collect data once, use many times" approach has set up a powerful network effect, and it looks like it will be difficult for competitors to catch up.
With the incidence of cyberattack attempts climbing and the potential damages from breaches also rising, businesses are flocking to CrowdStrike's software for protection. The cybersecurity specialist grew its total customer count by 41% last year, ending the period with more than 23,000 clients using its services. Along with increased spending from customers already using its services, this helped CrowdStrike grow sales 54% last year to $2.24 billion and increase its non-GAAP (adjusted) earnings by 130%.
Even with macroeconomic headwinds tamping down on growth, CrowdStrike anticipates that it will grow sales by roughly 34% this year. The company also anticipates growing adjusted earnings per share by approximately 49% based on the midpoint of its guidance range. Despite the unfavorable macro backdrop, this is a business that's still very much in growth mode, and it has a huge runway for expansion ahead.
The evolution of AI technologies will make cyberattacks more advanced and numerous, which will further drive demand for cybersecurity services. CrowdStrike's leadership in adaptive technologies for fending off cyberattacks has the business positioned to play a key role in protecting tech hardware and networks. Trading down roughly 55% from its high, I think the stock has the potential to be a massive winner for long-term investors.
Alphabet's business is poised to benefit from artificial intelligence
Parkev Tatevosian: Artificial Intelligence can be used to benefit many business processes. Alphabet is one such company and it expects to be at the forefront of harnessing the power of AI. For instance, Alphabet has been using AI to improve the effectiveness of its YouTube segment. Using AI algorithms at YouTube helps improve its recommendations on videos users most want to watch and its boosting engagement.
With the help of AI, Alphabet built a powerful business that has grown to reach $283 billion in revenue in 2022. That was more than double the $111 billion it generated in 2017. Enhancing YouTube with better recommendations, making Google search more user-friendly, and saving time writing correspondence in Gmail immediately benefited from AI.
Further, AI might allow Alphabet to operate with fewer employees by increasing the productivity of each worker. It already increased its operating income to $75 billion in 2022. If AI even marginally improved the productivity of each employee, those profits could be expanded further. There is no question that Alphabet will try to capitalize on the rising effectiveness of AI.
GOOG PE Ratio data by YCharts
Fortunately for investors, Alphabet's stock trades at a price-to-earnings ratio of 22.5. That valuation puts Alphabet stock near the lowest it has sold for in the last several years. Investors looking to ride the tailwind of artificial intelligence have an excellent option with Alphabet stock.
CrowdStrike and Alphabet are top plays in AI
While it's impossible to say exactly when the next bull market will arrive, history has shown that bear market conditions tend to be great buying opportunities for long-term investors. Additionally, it seems virtually certain at this point that AI will have transformative impacts on nearly every industry under the sun in the coming decades, and companies that push the trend forward have the potential to emerge as huge winners. As category-leading providers of AI-driven services with powerful new growth catalysts emerging, CrowdStrike and Alphabet look like smart buys right now.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keith Noonan has no position in any of the stocks mentioned. Parkev Tatevosian, CFA has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and CrowdStrike. The Motley Fool has a disclosure policy.
