The tech sector has served as a volatile and risky but potentially lucrative sector for investors. While most active tech investors may have seen their share of disappointments, they might accept that as one of the risks that leads them to the next Nvidia or Tesla.
No company or analyst can promise that an up-and-coming company will become the leader in a specific area of the tech industry. But stocks such as CrowdStrike (CRWD) and Palantir (PLTR) could serve investors well now and over the long haul.
CrowdStrike is a smart pick because it may be one of the more recession-resistant companies in the tech industry. It benefits from the secular growth of the cloud industry since it helps protect these networks. And because the cloud cannot exist without security, its customers will need the company’s products in just about any economy.
Its Falcon platform stands out further for its endpoint security, which protects laptops, smartphones, and other devices despite their mobility. And its ability to leverage AI and crowdsourced data to protect networks has helped differentiate the company from its numerous competitors.
Additionally, once customers turn to CrowdStrike, they tend to purchase additional CrowdStrike packages, or modules. About 63% of its customers have adopted five or more modules.
Little wonder that its revenue for the first half of fiscal 2024 (ended July 31) came in at $1.4 billion, a 39% increase over the same period in fiscal 2023. But while that may sound impressive, it is down from fiscal 2023 when revenue increased 54%. CrowdStrike blamed a slowing macroeconomy as a reason for the sales growth decline.
Nonetheless, 39% is an impressive growth rate in an uncertain economy. Also, its only two profitable quarters in company history resulted in a $9 million net income.
CrowdStrike continues to run operating losses, so interest income helped turn it profitable. Still, the fact that operating losses fell by 52% indicates it could soon achieve operational profitability.
Moreover, as CrowdStrike sells more modules and earns more revenue, it may help investors overlook its 56 forward price-to-earnings (P/E) ratio and buy shares of the cybersecurity stock.
Investors often compare Palantir to data-analytics companies such as Alteryx or Snowflake. However, neither these companies nor any other match the analytics capabilities offered by Palantir.
Instead, Palantir excels in both organizing and analyzing data. Through that process, the software can deliver insights and recommend decisions.
Palantir began by offering such analyses for law enforcement and national security purposes. Nonetheless, it has since expanded into commercial applications to capture a larger customer base.
Additionally, the company released its artificial intelligence platform (AIP) earlier this year to employ large language models in the analysis process. Such additions helped boost the stock. Since the beginning of the year, Palantir has risen by approximately 120%.
Furthermore, in the second quarter, the company increased its customer count by 38% versus the year-ago quarter. This includes a 35% increase in U.S. commercial customers, an area that has brought the company some of its fastest customer growth in recent quarters.
Still, its revenue growth has lagged the rate of customer increases. Its nearly $1.1 billion in revenue during the first half of 2023 increased 15% versus the same period one year ago. Dependence on government markets and competitors making inroads may have weighed on revenue growth.
Palantir limited operating expense growth to 3%. That focus on reducing expenses helped it earn a profit in both quarters in 2023, earning a total of $47 million in the first half of the year.
Its profitability and AI-driven success have helped to make this software-as-a-service (SaaS) stock expensive, and new buyers will pay approximately 62 times its forward earnings. However, with high demand and the company forecasting a positive net income for at least the next two quarters, Palantir should prove to be a wise investment over time.
— Will HealyWhere to Invest $99 [sponsor]
Motley Fool Stock Advisor's average stock pick is up over 350%*, beating the market by an incredible 4-1 margin. Here’s what you get if you join up with us today: Two new stock recommendations each month. A short list of Best Buys Now. Stocks we feel present the most timely buying opportunity, so you know what to focus on today. There's so much more, including a membership-fee-back guarantee. New members can join today for only $99/year.
Source: The Motley Fool