Artificial intelligence (AI) solutions come in many different forms. Plus, there’s a whole hardware and software industry needed to support AI platforms. That’s what makes the AI investment opportunity so large, as there are many different ways to capitalize on this trend.
One of my favorite ways to invest in AI is the application angle: companies that utilize AI, but don’t necessarily market themselves as AI-first companies. These companies use AI because it helps them provide their customers with better products and services, and their stocks may not get so overhyped because they aren’t AI pure plays.
Two companies that exhibit these characteristics are UiPath (PATH) and CrowdStrike (CRWD). Each of these stocks appears to be a strong buy now, and could make investors look like geniuses if they hold onto their stakes for at least five years.
UiPath
UiPath specializes in robotic process automation (RPA). RPA helps companies become more efficient by helping to automate tedious tasks. Instead of having employees mindlessly click through several pages, pull data from the same source, and create a report, UiPath provides tools that can automate these tasks, freeing people to do more creative work.
UiPath uses AI to supplement this product to mine information from other data streams. It also monitors employees to identify tasks that can be automated.
The RPA market opportunity is relatively small right now: According to Polaris Market Research, it was around $2.66 billion in 2022. However, Polaris forecasts that it will grow to $66 billion by 2032. Considering that UiPath’s annual recurring revenue (ARR) was $1.38 billion in its fiscal 2024 Q3 (which ended Oct. 31) and growing at a 24% clip, UiPath is on course to become a large player in this industry. The emerging economies of scale will drive the company’s profit margins higher, eventually resulting in positive profits.
Despite being a top option in a growing industry, UiPath’s stock doesn’t command the same lofty premium as many of its peers.
Trading at 10 times sales, UiPath looks like a great investment at these prices. I’m confident that it should be a market-crushing investment over the next five years, and with a great entry price, investors should consider picking up shares of UiPath.
CrowdStrike
CrowdStrike is a leader in the cybersecurity space. Its primary offering is endpoint protection — protecting network access points like phones or laptops from breaches. CrowdStrike uses a branch of AI known as machine learning to create sophisticated cybersecurity products that constantly and automatically evolve to protect its clients from the latest threats.
However, it didn’t just stop there. It has a full suite of other cybersecurity solutions, and 63% of CrowdStrike’s customers utilize at least five of its products.
The cybersecurity market is massive and growing. CrowdStrike estimates its addressable market this year will be about $100 billion once all its solutions are accounted for. However, between the addition of new products and the growth of its existing segments, it expects that figure to surge to $225 billion by 2028. With CrowdStrike’s ARR rising 35% to $3.15 billion in its fiscal 2024 Q3 (which ended Oct. 31), it has a long way to go before maxing out its opportunity.
CrowdStrike is also starting to become profitable, as its margins have steadily improved throughout the last year.
With CrowdStrike starting to generate profits, growing at a blistering speed, and operating in a market with a massive opportunity, investors shouldn’t be surprised that its stock commands a high premium. At 21 times sales, CrowdStrike is a very expensive stock compared to sector rivals such as Palo Alto Networks (NASDAQ: PANW) and SentinelOne (NYSE: S):
However, I still think this is a reasonable price. CrowdStrike’s market opportunity is massive, and cyberattacks aren’t slowing down. It has all the makings to be the industry leader in this space, and owning best-in-class companies like CrowdStrike has been a top investment strategy for years.
— Keithen Drury
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Source: The Motley Fool