These two technology leaders are leveraging artificial intelligence to fuel further growth.
Artificial intelligence (AI) is quickly becoming the most important narrative in the technology industry as companies recognize the massive opportunities it creates, from business productivity to cybersecurity.
Already, a handful of companies have emerged as AI technology leaders, including the semiconductor company Broadcom (AVGO -10.36%) and head of cybersecurity CrowdStrike (CRWD -3.91%). Here’s why these tech stocks might be worth buying now.
Image source: Getty Images.
1. Broadcom
Broadcom has emerged as a leading AI company thanks to the company’s semiconductors and AI software. Investors who have followed the company for a while have likely noticed a shift toward AI chips lately — and it’s paying off in big ways.
Broadcom creates custom AI chips used by Alphabet and other technology companies that have become a popular option for companies increasing their infrastructure needed to compete in the AI market. At the same time, Broadcom’s acquisition of VMWare also boosted the company’s AI infrastructure software sales, which rose 200% year over year to $5.8 billion in the third quarter (which ended the August 4).
Broadcom’s total sales rose 47% last quarter to $13.1 billion, and non-GAAP net income of $6.1 billion was up about 33% year over year.
The company’s recent growth and its emergence as a leader in AI technology have fueled demand for its shares, which now trade at a price-to-earnings ratio of 27. While it is not cheap, it is still relatively cheap compared to the technological rival. Nvidiawhich has a forward P/E of 42.
Investors may be wondering if there is room for Broadcom’s AI chip sales to continue to grow; management certainly thinks there is, because they estimate the revenue from AI will be $12 billion by fiscal 2024. With the demand for AI chips just ramping up, the harvest of the company’s shares could be a great move to long term
2. CrowdStrike
CrowdStrike is a leader in cybersecurity, gaining a leading position because its Falcon platform offers companies comprehensive security solutions that are difficult to compete with.
One of the reasons CrowdStrike has been able to fend off rivals is that it has imbued its security platform with artificial intelligence. Falcon has had AI capabilities for years, and the platform continues to get smarter as it is trained on more than 2 trillion security events. every day.
The company’s commitment to creating a leading cybersecurity platform has resulted in robust growth. Revenue in the second quarter (which ended July 31) increased 32% year over year to $963.9 million, and non-GAAP net income increased nearly 46% to $226.8 million. Growth in the quarter helped push CrowdStrike’s free cash flow up 44% from the year-ago quarter to $272 million.
Customers continue to expand their use of the CrowdStrike platform, with 65% of customers in the second quarter adopting five or more security modules in Falcon and 45% having six or more.
If there is a disadvantage to CrowdStrike, it is that the company’s shares trade at a premium. The stock’s forward P/E ratio is 75, which is well above the cybersecurity industry average of about 22. But with CrowdStrike’s leading position in security and its Falcon platform improving continuously through AI, I think I will take back some of the company’s shares after its 16. The % dive in the last three months could be a smart decision.
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Alphabet, CrowdStrike and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.