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Unless you live under a rock, you’ve likely noticed that artificial intelligence (AI) is finding its way into a lot of investment news lately. The first things that come to mind when I think of AI are The Jetsons‘ robot housekeeper and HAL 9000 from 2001: A Space Odyssey. But in the investing world, AI and machine learning (ML) have brought to mind discussions about how these two topics will fuel the future growth of many successful companies, including the three below.
Here are three AI-influenced stocks you might want to take a closer look at and potentially invest in for the next decade.
CrowdStrike (CRWD 3.55%) stock is trading down about 50% from its 52-week high, a victim of the growth-stock bubble deflated somewhat by rising interest rates. While the stock price has fallen, the company’s business results remain spectacular.
CrowdStrike’s Falcon cybersecurity platform uses AI to help it prevent security breaches for more than half of the Fortune 500, and 70% of the Fortune 100. The company’s customer base has more than doubled in just two fiscal years (see chart below) and increased nearly tenfold since fiscal 2019.
Data source: CrowdStrike. Chart by author.
CrowdStrike’s rapidly expanding customer base is vital to its success. The company maintains about 98% of its existing customers each period, and these customers spend, on average, more than 20% more each year on CrowdStrike’s services.
Adding the revenue growth from existing customers to the expanding customer base has led to phenomenal increases in annual recurring revenue (ARR) and free cash flow. CrowdStrike’s just-released earnings from fiscal 2023 (which ended Jan. 31) show an ARR of $2.6 billion (for 48% growth year over year) and $677 million free cash flow (53% growth year over year).
CrowdStrike’s AI-powered platform is award-winning, and its financial results are terrific. Just remember that this is still a growth stock, making it most appropriate for long-term investors who don’t mind holding a stock through short-term volatility.
Algorithms, machine learning, and data lie at the heart of Amazon‘s (AMZN 2.70%) business. They determine product placements, enable voice-activated technology (like Alexa) and cashier-less physical stores, optimize Amazon Prime viewing, and create efficiencies for fast deliveries. This is before mentioning Amazon Web Services (AWS), the world’s leading cloud-services platform, which hosts and stores the data needed by AI developers. Amazon’s technology is the paramount factor in its success.
It’s no secret that Amazon has struggled in a challenging economy, with inflation, logistical woes, and rising workforce costs among the headwinds. But there are plenty of reasons for optimism. The company is quietly transforming from a product-based company to a service-based one with better profit potential. Retail sales aren’t highly profitable, but services (like AWS, with its 29% 2022 operating margin) are moneymakers. 2022 was the first year in which Amazon revenue from services was higher than product sales.
Subscription services like Amazon Prime, digital advertising, and AWS are essential to Amazon returning to glory. Sales in each were up more than 10% in 2022, with AWS leading the way, as shown below:
Data source: Amazon. Chart by author.
Amazon is more than 45% off its 52-week high, which means patient and optimistic investors can accumulate shares while sentiment is tepid.
Wisdom says that most people heading to a gold rush don’t become filthy rich, but that those selling them picks and shovels do very well. That’s where Analog Devices, Inc. (ADI 2.68%) fits into the AI rush: Its chips are used to make cutting-edge tech possible. What do autonomous vehicles, industrial robotics, and advanced medical devices have in common? They all need analog semiconductors to translate real-world data. Analog Devices specializes in designing and producing these semiconductors to collect basic data that can be as varied as temperature or velocity or sound.
Analog Devices doesn’t get much buzz among retail investors because what it produces isn’t as “glamorous” as what digital chipmakers like Nvidia are able to produce and market. The thing is, it should be getting more buzz. Revenue for fiscal 2022 rose 64% to $12 billion. Even better, ADI produced $3.8 billion in free cash flow, and it managed to generate a 31% margin.
Analog Devices then returned $4.6 billion of its earnings to shareholders through dividends and stock buybacks. The company’s management has pledged to return 100% of future free cash to shareholders, which means its dividend’s growth path (shown below) is likely to continue going up:
ADI Dividend data by YCharts.
Analog Devices is broadly diversified across industries and has more than 125,000 customers, so it doesn’t have as much industry or customer concentration risk as many other chipmakers — good news in our questionable economy. ADI stock adds up to a terrific opportunity for dividend growth investors.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bradley Guichard has positions in Amazon.com, Analog Devices, and CrowdStrike. The Motley Fool has positions in and recommends Amazon.com, CrowdStrike, and Nvidia. The Motley Fool has a disclosure policy.
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