Nvidia has become the gold standard of artificial intelligence (AI). From supercomputing hardware to subscription software, it provides everything a business needs to develop and run large-scale AI applications. Unsurprisingly, Nvidia is also the most valuable semiconductor company in the world. Of course, I still think the stock is worth buying, and I remain a shareholder myself, but other AI companies probably offer more potential.
Assets received ( UPST -3.71% ) and CrowdStrike Holdings (CRWD) 1.67% ) look like smart long-term investments. Here’s why these two AI growth values are worth a closer look.
1. Assets received
Traditional credit scoring models typically incorporate fewer than 30 variables, which means banks often fail to quantify risk accurately when making retail lending decisions. To this end, many creditworthy borrowers are excluded, and those who are approved sometimes pay too much interest to borrow money. But Upstart’s platform captures more than 1,500 data points per borrower and measures these variables against 21.6 million repayment events (and counting), allowing lenders to quantify risk more precisely to better determine solvency.
In fact, a Consumer Financial Protection Bureau report suggests that compared to traditional credit models, Upstart’s AI models can increase approval rates by 27% while lowering the average interest rate by 16%. %. And that value proposition has boosted Upstart’s financial performance. Last year, transaction volume soared 241% to $11.8 billion, and the number of banking partners on its platform reached 38, up from 12 the previous year. In turn, revenue rose 264% to $849 million, and the company recorded generally accepted accounting principles (GAAP) net income of $135 million, up from $6 million in 2020.
More importantly, Upstart still has plenty of room to grow. Its technology is currently used to create personal and auto loans, and those markets are collectively valued at $820 billion. In other words, Upstart’s transaction volume of $11.8 billion in 2021 represents less than 2% of its total addressable market (TAM). Even better, management plans to expand into new verticals over time, including the $4.6 trillion mortgage market and the $644 billion small business loan market.
Today, Upstart is an $8 billion company — worth far less than Nvidia at $605 billion — but it’s well on its way to disrupting a multi-trillion dollar industry. With that in mind, I think this stock could grow tenfold over the next decade.
2. CrowdStrike Holdings
CrowdStrike has become the benchmark across multiple cybersecurity industry verticals. Its platform includes 22 different software products, ranging from endpoint and cloud security to identity protection and managed services. The main innovations of the company are its cloud architecture and the lightweight sensor installed on each protected device. This sensor gathers relevant security data from these devices and sends it back to the cloud, where CrowdStrike’s AI engine analyzes these signals to detect and prevent cyberattacks.
This approach creates a network effect. Each new data point improves CrowdStrike’s AI a little, and each time a threat is detected in an environment, it can be blocked on all protected devices. Thus, each new customer creates value for all existing customers, and vice versa. This dynamic has kept CrowdStrike at the forefront of the industry. In reality, Forrester Research recently named the company a leader in endpoint security, managed services and cybersecurity incident response.
This recognition has been accompanied by dazzling financial results. CrowdStrike has grown its customer base by 65% to 16,325 in the last 12 months, and 34% of those customers are now using six or more software products, compared to just 6% in fiscal year 2019 (ended January 31, 2019 ). In turn, revenue soared 66% to $874 million in fiscal 2022 (ended Jan. 31, 2022) and free cash flow soared 51% to $442 million. .
Going forward, CrowdStrike’s strong competitive position and ability to innovate should help it maintain this momentum. For example, it recently released a new software module: Extended Detection and Response (XDR). XDR powers third-party data like Z-scale and Mimecast in CrowdStrike’s AI engine, unifying security signals across enterprise networks, messaging systems, cloud workloads, and endpoints. In doing so, XDR accelerates incident detection and response.
More broadly, CrowdStrike has a big TAM — $126 billion by 2025, according to management — and the company is clearly tapping into that opportunity. If CrowdStrike can grow its revenue by 30% per year over the next decade, I think that $50 billion business could grow fivefold over that time. That’s why this AI growth stock looks like a smart buy.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.