A once-in-a-generation investment opportunity: 2 artificial intelligence (AI) growth stocks to buy now and hold for the long term | composed fool

Recent advances in artificial intelligence (AI) have sent Wall Street into a frenzy, and Wedbush Securities Strategist Dan Ives is particularly bullish. “We believe the stage is set for a ‘1995 moment’ because AI is the most transformative technology we’ve seen since the Internet,” he recently told clients.

This interpretation indicates the creation of considerable wealth. The Internet is the foundation of several markets now measured in the hundreds of billions or even trillions of dollars, including cloud computing, digital advertising, and e-commerce. Investment opportunities like that, however, come once every generation, and Ives says AI is the next gold.

Here are two AI growth stocks you can buy and hold now.

1. CrowdStrike Holdings

CrowdStrike Holdings (CRWD 0.69%) Expert in cyber security software. Its Falcon platform consists of 27 modules spanning several major markets, and the company is recognized as a leader in many of them, including endpoint security, cloud security and threat intelligence. This success is a product of the platform’s unique architecture, superior artificial intelligence (AI), and workload consolidation.

In particular, the Falcon platform can be deployed more easily than other products because each module is delivered via a sensor that can be installed without rebooting the system. CrowdStrike also designed its platform to capture data unlike other solutions on the market, and each data point makes its machine learning models a little better at detecting threats.

In other words, the company has a data advantage that points to superior AI, which itself points to superior threat protection. “CrowdStrike is leading the industry in applying AI/machine learning to endpoint security, as well as providing unmatched malware and malware-free attack prevention,” said Sarah Pawlak of Frost & Sullivan Consulting.

This selling point becomes even more compelling with workload stabilization opportunities. CEO George Kurtz says most companies buy more than 60 cybersecurity point solutions, but CrowdStrike helps reduce operational complexity by consolidating more than two dozen products into one platform.

CrowdStrike delivered solid financial performance in the second quarter despite persistent macroeconomic headwinds. Revenue rose 37% to $732 million, and non-GAAP (adjusted) net income rose 109% to $180 million. Additionally, CFO Brett Podber said the company has the best retention rates in the industry, a testament to the value its platform creates for customers.

Looking ahead, CrowdStrike has laid out an ambitious product roadmap that could grow its addressable market to $158 billion by 2026, up from $76 billion today. Morningstar analysts expect annual revenue growth of 31% over the next five years. That makes its current valuation of 16.5 times sales look fair, especially compared to its three-year average of 31.5 times sales. Investors should feel comfortable buying this growth stock today.

2. UiPath

UiPath (Direction -2.23%) Expert in Robotic Process Automation (RPA) software. RPA is a technology that can automate simple and repetitive tasks such as extracting information from a structured document. UiPath also embeds its software with artificial intelligence capabilities that support more complex automation such as extracting and acting on information from an unstructured document.

The UiPath platform enables businesses to (1) analyze tasks and processes to identify opportunities for automation, (2) build software bots that automate a variety of simple and complex workflows, and (3) Manage and optimize those software robots. UiPath is a recognized leader in several related markets, including RPA, process mining, task mining, and intelligent document processing.

UiPath reported reasonable financial results in the second quarter. Revenue rose 19 percent to $287 million, and non-GAAP net income was $49 million, up from a loss of $11 million a year earlier. Investors can expect a similar move in the future as UiPath leans toward its AI-based product roadmap.

Autopilot and Clipboard AI are notable innovations. The first is a generative AI assistant that allows customers to automate natural language operations, making the UiPath platform more user-friendly. The latter allows customers to intelligently copy and paste data into applications, documents and spreadsheets, and was recently recognized by TIME as one of the best inventions of 2023.

UiPath believes its AI-based product roadmap will grow its addressable market from $61 billion today to $93 billion in the future. As this happens, Morgan Stanley It sees a range of possible outcomes, with annual earnings growth between 6% (bear case) and 21% annual (bull case) over the next decade. On a case-by-case basis, UiPath should earn 13% annually, which makes its current valuation of 7.8 times sales seem fair.

UiPath is the riskier of the two investments discussed in this article. Its growth has slowed sharply in response to macroeconomic headwinds, and automation software is less important than cybersecurity software. However, if the company establishes itself as the gold standard in AI-based business automation, UiPath shareholders could see a windfall in the future. So, I think this stock belongs in a broader portfolio of AI stocks and now is a good time for risk-averse investors to buy a small position.