The election is finally over. Whether you were happy with the results or not, we can all probably agree that the political ads mercifully ending is a massive relief. Finally, I can watch a football game in peace. So let's get back to the business at hand, finding excellent companies to invest in and building wealth. Artificial intelligence (AI) is the rage in tech, and these investments haven't peaked. Far from it.
Bloomberg reports that Big Tech companies plan major ramp-ups in capital expenditures (capex) on data centers and other AI-related tech to the tune of $200 billion in 2025. This is an increase of more than 20% from this year and more than 80% from 2023. No one knows for sure which companies will be the winners in the long run (that's why you don't put all your eggs in one basket), but here are two companies with the ingredients to make it happen.
Micron
When you think of memory, think of Micron(NASDAQ: MU). Micron supplies DRAM (dynamic random access memory) and NAND (flash memory) to computers, smartphones, tablets, automotive systems, and data centers, among others. As mentioned above, the data center opportunities are vast. High-bandwidth memory (HBM), an advanced DRAM configuration, is critical to modern data centers because of its speed and efficiency. Micron expects the addressable market for HBM to grow 600% from $4 billion in 2023 to over $25 billion in 2025. Micron forecasts "multiple billions" in HBM sales alone in fiscal 2025.
In total, DRAM delivered $17.6 billion in revenue in fiscal 2024, a 60% year-over-year increase, while total sales hit $25 billion on 62% year-over-year growth. The company converted 34% of sales, or $8.5 billion, into operating cash flow and earned $1.30 in diluted earnings per share (EPS).
The biggest risk to an investment in Micron is that the company's results can be cyclical; however, the intense data center demand indicates an upcycle. As evidence, analysts expect a significant ramp to nearly $9 of EPS in fiscal 2025 and even higher in fiscal 2026, as depicted below.
MU EPS Estimates for Current Fiscal Year data by YCharts
28 of 31 analysts rate the stock a buy or strong buy with an average price target 26% above the current price of $113 as of the date of this writing. Micron is poised to capitalize on increased demand from AI and could benefit investors tremendously.
CrowdStrike
Protecting internal systems is top of mind for C-suite executives everywhere. Breaches are costly to the pocketbook and reputations. The threats only increase with generative AI models and infrastructure. CrowdStrike(NASDAQ: CRWD) is an entirely cloud-based cybersecurity leader that utilizes AI to protect systems. It recently launched CrowdStrike AI Red Team Services, which protects AI systems specifically.
While CrowdStrike has been a household name for investors for years, it recently became famous worldwide, but not in a positive way. Its ill-advised update in July caused massive problems for many systems, including airlines that delayed or canceled thousands of flights and caused chaos at airports. This was damaging to CrowdStrike's reputation, but not fatally so. The company is still financially performing well, and this incident should soon be in the rear-view mirror. Still, investors should consider the risk of further fallout when deciding how much to allocate to the stock.
As shown below, CrowdStrike's revenue and free cash flow have risen precipitously since the company went public.
CRWD Revenue (TTM) data by YCharts
The 32% free-cash-flow margin is impressive, and the company achieved operating profitability on a GAAP basis in recent quarters.
The outage caused the stock to tumble, and it remains well under its valuation before the incident, as shown below.
CRWD PS Ratio data by YCharts
CrowdStrike believes it has a $100 billion addressable market now that will balloon to $225 billion by 2028. This gives the company enormous potential for continued growth for many years. The security incident could have some further fallout; however, the dip in the stock could be an excellent opportunity for long-term investors.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
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Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of November 4, 2024
Bradley Guichard has positions in CrowdStrike and Micron Technology. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool has a disclosure policy.
