After the dismal performance of the last year, the stock market has done quite well in 2023. Wall Street has been quite unpredictable as recession worries of the past have been replaced by euphoria around all things artificial intelligence (AI).
The benchmark S&P 500 The index is up 15% so far this year. With the index currently about 23% above its October 2022 low, many analysts now believe this could be the early stages of a bull market.
Whether this is a definitive bull market or not, only time will tell. However, investors looking to build wealth over the long term can strengthen their portfolios by taking small positions in incredible stocks that can thrive in a bull market and are resilient in a bear market. Here’s why Microsoft (MSFT 0.22%) and CrowdStrike (CRWD -3.71%) fit the bill perfectly.
Tech giant Microsoft significantly beat consensus estimates for revenue and earnings for the fourth quarter ended June 30, 2023. Despite the solid results, the company’s outlook appears to have disappointed investors. And if you watch the stock market, while Microsoft shares may have fallen nearly 8% since the company’s fourth-quarter results were released, they’re still up 35% so far this year — and could rise again in the coming months .
As a key player in the ongoing AI revolution, Microsoft’s $13 billion investment in ChatGPT developer OpenAI has played a crucial role in optimizing its offerings like Bing, Azure, and Microsoft 365, making them more efficient and cost-effective.
The company’s deep penetration in enterprise software (in areas like productivity, cloud computing infrastructure, and cybersecurity) puts it in an advantageous position to resell its generative AI offerings. The company plans to monetize Microsoft 365 Copilot, an AI assistant for the Microsoft 365 productivity suite, for $30 per month – a huge revenue opportunity considering over 345 million people (paid licenses) use the Microsoft 365 use suite.
In 2023, Microsoft’s Azure cloud business alone contributed nearly $55 billion to total cloud revenue of $110 billion. Cloud computing continues to be a major growth opportunity for Microsoft. Even in 2023, on-premises infrastructure will account for 90-95% of global IT spending. As organizations opt for improved productivity and optimal resource utilization, migration to the cloud will continue in the years to come.
According to Mark Mahaney, an analyst at Evercore ISI, cloud computing will also benefit significantly from the tremendous increase in demand for computing power and data storage required for generative AI workloads.
Cybersecurity has also emerged as a new venture for Microsoft – and with Security Copilot (next-generation AI for security operations), the company will be well-positioned to rapidly capture market share in this growing market. If you’re considering an investment in Microsoft given this strong tailwind, the future looks pretty bright.
Cybersecurity firm CrowdStrike’s stock is up 36% so far this year, but it’s still more than 50% off its all-time high. The company’s price-to-sales (P/S) ratio is also at an all-time low of 13.8. Certainly, there’s still a good chance the stock will rise in the coming months.
Cybersecurity specialists CrowdStrike has been using AI and machine learning to detect, respond to, and remediate cyberthreats for a decade. The proliferation of connected devices and the growing adoption of hybrid workstyles have made endpoints (devices such as tablets, smartphones, and laptops) easy targets for hackers.
These are some of the trends driving the rapid growth of the endpoint security market, which is estimated to grow from $13.4 billion in 2023 to $29.7 billion in 2027. CrowdStrike is the leader in endpoint detection and response, with a 17.7% market share and is benefiting tremendously from this tailwind.
CrowdStrike also offers other security services such as identity protection, observability and workload protection through its cloud-native, AI-driven, multi-modular Falcon platform.
CrowdStrike has built a solid customer base of over 23,019 (as of the end of FY2023). The company’s broad customer base and portfolio of diverse security offerings enable it to effectively upsell and cross-sell its offerings. The company also benefits from the network effect, as it collects data on innovative types of cyber threats (trillions intercepted every week) and uses it to train its systems to be smarter at preventing them — further attracting new customers.
For the second quarter of fiscal 2024 (ending July 31, 2023), analysts expect CrowdStrike to report revenue of $720 million to $736 million, a year-over-year increase of 34% to 42%. Analysts are also expecting GAAP earnings per share (EPS) of $0.54 to $0.58 for the second quarter. According to research by Barclays analyst Saket Kalia, CrowdStrike is expected to report a “strong pipeline of deals” with companies contracting eight or more modules.
CrowdStrike’s cybersecurity business has proven quite resilient even as companies have cut back on IT spending. As such, this stock may prove to be an attractive pick for investors interested in investing in burgeoning AI trends in cybersecurity.
Source : www.fool.com