Here are two companies that are producing tremendous results.
It seems that all modern technological innovations undergo some sort of hype cycle. The most famous is the dot-com bubble of the late 1990s and early 2000s. Nasdaq The number of artificial intelligence (AI) companies more than doubled between early 1997 and the peak in March 2000. Many believe that an artificial intelligence (AI) bubble is forming; many others disagree. One of the key differences between today’s companies and those of the dot-com bubble era is profitability.
While many tech companies back then had little sales and no profits, dozens of AI companies are now cash flow positive, revenue soaring, or highly profitable—and not just by touting their successes. It’s a key distinction that can help guide your investment strategy. Here are two companies that fit that mold.
Micron Technology
If there’s one thing AI needs, it’s data, and that data needs memory – tons of memory. Micron (MU -3.81%) Micron Corp. is a global leader in providing DRAM (dynamic random access memory) and NAND (flash memory), which are used in smartphones, PCs, memory cards, data centers, and more. After a difficult fiscal year 2023, Micron is back with a vengeance.
In fiscal 2023, Micron faced geopolitical issues that hampered its sales in China and a market where its products were not in demand due to oversupply. In other words, many of its customers were using existing inventory rather than buying more from Micron. Sales fell from $31 billion in fiscal 2022 to $16 billion in fiscal 2023. The industry is cyclical; in 2023, it was down, but now things are improving.
AI is fueling two trends that will benefit Micron. First, hundreds of data centers are coming online each year, and that trend is expected to continue for many years. Micron management says its high-speed memory (HBM) sales will reach hundreds of millions this fiscal year and “multi-billion” next year. Second, AI will increase demand for PC and smartphone upgrades, and these AI-enabled systems will require more memory, which will be a direct benefit to Micron.
Micron reported revenue of $6.8 billion in the third quarter of fiscal 2024, an 81% increase from the prior year and a significant improvement in margins due to strong demand. Operating income improved year over year, from a loss of $1.8 billion to a profit of $719 million.
The stock’s valuation is lopsided due to its profitability last year and its gradual recovery this year. Analysts on average are forecasting earnings per share (EPS) of just $1.23 this year, giving Micron a price-to-earnings (PE) ratio of over 100 at its current price; however, that’s not all. As shown below, analysts are forecasting a massive EPS increase next year to $9.48, which would bring the PE ratio to just 14.
MU (Forward) Price-to-Earnings Ratio data by YCharts
The low valuation based on FY2025 estimates and significant tailwinds make Micron a solid long-term investment.
Crowd strike
Cybersecurity is always a priority for executives because the costs of breaches, in terms of direct costs, downtime, recovery, etc., can be immense. Most successful breaches occur at the endpoint level, which is why companies are demanding AI-based protection, such as Crowd strike‘s (CRWD 0.65%) Falcon platform.
Falcon is entirely cloud-based and modular, allowing companies to add features as needed. Selling additional modules is part of CrowdStrike’s “land and expand” sales strategy, which is working well. In Q1 FY25, 65% of customers were using at least five modules, and 28% were using seven or more.
Demand for endpoint protection is driving incredible growth in CrowdStrike’s sales and free cash flow, as shown below.
The incredible sales increase and free cash flow margin of nearly 32% over the past 12 months show why investors are buying the stock like crazy. The stock is up 50% so far in 2024 and 500% over the past five years. However, this epic run-up has pushed the stock’s price-to-sales (P/S) ratio to an extremely high level.
CrowdStrike’s P/S ratio now stands near 29, higher than other high-growth software companies Palantir and cybersecurity companies like Palo Alto Networks And Zscaler:
CRWD PS Ratio Data by YCharts
Investors should be cautious about buying CrowdStrike due to its valuation; however, the company’s results are spectacular and its future is bright.
Artificial intelligence is booming, and many companies are reaping the benefits. Tech investors: Keep Micron and CrowdStrike on your radar.
Bradley Guichard holds positions at CrowdStrike, Micron Technology, and Palo Alto Networks. The Motley Fool holds positions at and recommends CrowdStrike, Palantir Technologies, Palo Alto Networks, and Zscaler. The Motley Fool has a disclosure policy.
