Artificial intelligence (AI) continues to gain prominence in the financial landscape, with significant growth anticipated in the coming years. According to Statista, the AI industry is projected to escalate from a valuation of approximately $184 billion in 2023 to over $826 billion by 2030, reflecting nearly a 30% annual growth rate. This surge is expected to be notably driven by advancements in machine learning, which enhances AI's ability to process vast datasets and identify trends.
Within this rapidly evolving landscape, two companies have emerged as potential frontrunners poised to benefit significantly from this technological boom: CrowdStrike Holdings and Snowflake.
CrowdStrike Holdings, a key player in the cybersecurity sector, is positioned to address the increasing complexities of cyber threats which have escalated in sophistication. The company's flagship platform, Falcon XDR, utilises machine learning algorithms to detect and prevent potential cyber threats in real time. Despite a recent incident involving a faulty update that disrupted its services globally, CrowdStrike remains confident in its growth trajectory. Management has projected revenues of over $3.9 billion for the upcoming fiscal year, which would represent a 27% growth compared to the previous year.
The company has noted that the cybersecurity market is expected to expand, with estimates suggesting that CrowdStrike's total addressable market could grow to $250 billion by 2029. Currently, CrowdStrike possesses a mere 1.5% share of this extensive market. Its robust financial standing is highlighted by generating $1.1 billion in free cash flow over the past year, bolstering its cash reserves to approximately $3.5 billion, net of debt. This financial health opens avenues for future shareholder returns through initiatives such as stock repurchase schemes. While the stock commands a price premium compared to its industry counterparts, experts suggest a strategic investment approach, especially during broader market downturns.
Snowflake, another company poised for significant impact, serves as a foundational player in the AI industry due to its focus on data management. By providing a cloud-based platform designed for data storage, organisation, and retrieval, Snowflake facilitates the crucial machine learning processes dependent on high-quality data. Although the company faced challenges in the aftermath of its initial public offering in late 2020, including slowed revenue growth and external competition, recent indicators suggest a positive shift.
Snowflake’s business model is built around usage-based billing, which aligns revenue growth with the increasing data demands of its customers. The company's net revenue retention (NRR) was reported at a noteworthy 127% in the most recent quarter, indicating that existing customers are consistently spending more over time. Additionally, the customer base saw a year-on-year increase of 20%, bringing the total number of clients to 754 from organisations listed in the Forbes Global 2000. Revenue growth is expected to remain robust, potentially hovering above 20% as Snowflake capitalises on the ever-expanding data landscape.
While the company's stock has not performed optimally over the last four years—currently down nearly 60% from its peak— analysts remain upbeat about its future prospects. With its price-to-sales ratio having dramatically decreased from a peak of 183 to 16, Snowflake presents a more attractive and sustainable investment proposition as it integrates further into the AI sector.
Both CrowdStrike and Snowflake exemplify distinct opportunities for investors looking to capitalise on the transformative trends in AI and machine learning, reflecting the potential for substantial long-term gains as the industry evolves.
Source: Noah Wire Services