Software stocks operating in the cybersecurity, data analytics, and cloud computing industries make for great investments
U.S. technology equities continue to be on a tear in the second quarter. The tech-heavy Nasdaq Composite has risen by roughly 13% year-to-date. If macroeconomic indicators exhibit signs of recovery from persistent inflation, U.S. equities could extend their rally. In this situation, software stocks are even better poised for significant gains. The artificial intelligence craze has influenced tech stocks since early last year and will probably do so for the time being. Software firms have scrambled to employ AI technologies in their products and have assured investors of the long-term benefits of artificial intelligence for their respective platforms.
The software stocks below are involved in various sub-verticals of the space, and their exposure to AI will help their shares surge 5X over the next five years.
CrowdStrike (CRWD)
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CrowdStrike (NASDAQ:CRWD) makes the initial entry on this software stocks to buy list. The COVID-19 pandemic ushered in a new era for remote working and a surge in demand for cloud computing services. With a plethora of data flowing through data centers, cloud services have required a host of new cybersecurity tools. That’s where CrowdStrike comes in. The cybersecurity firm offers a comprehensive suite of solutions for endpoint security and vulnerability management (VM). These technologies help to secure “endpoints,” such as laptops, phones, and desktops, while also deploying threat-detection capabilities to ameliorate a breach before it becomes severe.
Despite concerns about the macroeconomic environment, CrowdStrike has continued to increase sales with robust, double-digit growth figures. Similarly, in their Q4 FY2024 earnings report, CrowdStrike reported annual recurring revenue (ARR) Y/Y growth of 34% to $3.44 billion. The firm’s Falcon platform, which leverages AI to identify and neutralize threats as well as offers an AI security analyst chatbot named Charlotte AI, will likely gain more traction as demand for AI cybersecurity services increases.
CRWD shares have rallied nearly 40% since the start of the year.
Palantir (PLTR)
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Palantir (NYSE:PLTR) is a data analytics firm that has gained traction with a number of defense industry-related companies over the years. Last year, Palantir reported its first profitable year, generating $209.8 million in net income. Better operational efficiencies coupled with higher demand for AI products helped the platform to finally reach bottom-line profitability. I’ve noted in prior articles about Palantir that its AI Platform was most likely a lot of hype. Based on Palantir’s trimmed guidance after their Q1 2024 report, that idea seems less far-fetched.
While there may be a lot of AI hype driving Palantir’s shares, it doesn’t mean the data analytics firm’s platform will not gain traction in the future. Palantir continues to successfully market the AI Platform to prospective users, and with an increasingly diverse base of customers, the platform will gain traction. This makes Palantir a good long-term bet for investors seeking compelling returns in the next five years.
Alphabet (GOOG,GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is the holding company for tech heavy-weight Google. From providing a globally successful search engine and mobile operating system to providing cloud computing and AI services, Google is really setting itself up for continued success. The tech giant’s trading valuation multiple is only icing on the cake. GOOG trades at about 22.9x forward earnings, while the plurality of its competitors- Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Apple (NASDAQ:AAPL) – are trading at relative premiums.
In the company’s Q1 2024 earnings report, Google Cloud solidified itself as the company’s profit growth engine, despite investors having held doubts about the platform’s long-term viability. Operating income for the cloud business segment came in at $900 million in Q1, increasing 3.7x on a year-over-year basis.
The tech giant’s foray into AI could help boost Google Cloud’s sales growth and profitability in the long term.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
