Shares of this cybersecurity giant and semiconductor titan can produce impressive returns for long-term investors.
Investing in AI (artificial intelligence) stocks has gained momentum over the past few years. With businesses across industries increasingly adopting AI technologies to improve productivity, cost efficiency, and informed decision-making, AI will continue to be a major investment theme over the coming years.
Yet, not all businesses investing in, or deploying, artificial intelligence-based technologies have equal prospects ahead. Companies at the forefront of advanced data storage, data analytics, deploying AI-based platforms, cybersecurity, and machine learning technologies are better suited to demonstrate significant growth in the future. Not surprisingly, shares of these companies could generate robust returns for long-term investors.
Two such stocks that could fit this bill according to Wall Street analysts are CrowdStrike (CRWD 1.49%) and Nvidia (NVDA 1.46%). Let’s delve deeper and see what analysts see in these two ompanies for long-term success, which should be rewarding for investors.
CrowdStrike
Once a darling of the stock market, cybersecurity specialist CrowdStrike seems to have fallen out of favour after a faulty software update triggered a massive global IT outage on July 18, 2024. Although CrowdStrike rectified the error overnight, the failure of multiple mission-critical systems worldwide seems to have affected overall investor sentiment.
Despite the public faux pas, Oppenheimer analyst Ittai Kidron has maintained a “Buy” rating for the stock and set a target price of $450–implying an upside potential of 69% from Monday’s close. Many analysts continue to be bullish about the company, with the average stock price target being $337, implying a 27% upside.
Wedbush Securities has estimated that less than 5% of the company’s clients may switch top competitors–which amounts to around $150 million topline impact in fiscal 2025. Although the reputational blow may negatively affect business activity in the short to mid-term, the long-term impact may be minimal. This can be mainly attributed to the company’s strong gross retention rates (a measure of customer stickiness) of over 98% before the incident.
CrowdStrike’s multi-modular AI-powered Falcon platform acts as a one-stop-shop for clients’ cybersecurity needs, such as endpoint security, identity protection, cloud security, observability, threat intelligence, and data security. Falcon platform is scalable and easily deployable, characteristics that have made it deeply entrenched in their client’s daily business operations. Furthermore, Falcon is also benefiting from network effects–since increasing adoption of more modules helps secure more threat data to enrich the AI-powered Threat Graph. This is helping in better training of the Falcon platform. All these aspects have resulted in high switching costs for CrowdStrike’s customers.
The company will release its second quarter fiscal 2025 results (ending July 31) today after the US market close, and investors will be closely tuning in to glean more insights about the actual severity of the impact of the software and process update failure on the company’s client base and financials. The stock is currently trading at nearly 20 times trailing twelve-month (TTM) sales, far lower than its historical 5-year average PS ratio of nearly 30x. Hence, considering the company’s robust fundamentals and reasonable valuation, this seems to be a good entry opportunity for astute, risk-tolerant investors.
Nvidia
Semiconductor giant Nvidia is also set to report its second quarter fiscal 2025 earnings (ending July 28) today after US markets close. The stock has already gained nearly 155% so far in 2024, and is expected to rally even further in the coming quarters.
One of the most bullish estimates for Nvidia’s share prices is from Beth Kindig, CEO and Lead technology analyst at the I/O Fund, who has predicted the company’s market capitalization to reach $10 trillion by 2030 or even sooner–implying an upside potential of almost 218%. The analyst expects the company’s full-stack AI platform, accelerated product roadmap, and the solid moat created by the company’s CUDA software ecosystem to be major drivers for its stock.
Nvidia is seeing an explosion in demand for its AI chips and systems. Consumer internet companies, cloud providers, and enterprises across industries and geographies are increasingly using Nvidia’s AI chips, networking solutions, and AI-optimized software in data centers and generative AI applications.
Subsequently, in the first quarter of fiscal 2025, Nvidia’s data center revenues soared by 427% year-over-year to $22.6 billion. Demand for the company’s next-generation H200 and Blackwell architecture chips is expected to surpass demand till 2025. This implies that Nvidia will enjoy significant pricing power in the future months. The company is also exploring using liquid-cooling solutions for data centers, which can result in dramatic energy savings. Hence, with the global data center market estimated to be worth $416.10 billion in 2024, Nvidia seems well-positioned to benefit from this opportunity.
Furthermore, Nvidia is also gearing up to expand its total addressable market. The company expects Sovereign AI (initiatives by various governments to develop domestic AI capabilities) to translate into high single-digit billions in revenues in 2024, a dramatic increase from nothing in the previous year. The company also expects autonomous driving initiatives to further drive demand rapidly for AI chips and systems in coming quarters.
Nvidia is trading at 39 times trailing-twelve-month sales, far more than its historical five-year average of around 24. Despite the expensive valuation, the company’s AI technology leadership, robust financials, and expanding market opportunities make it an attractive pick now.