2 Monster Growth stocks in the making

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Whether you realize it or not, you probably interact with artificial intelligence (AI) on a daily basis. This includes search engines, social media sites, and product recommendation systems, as well as your home smart speakers and your smartphone’s personal assistant. But AI is also being used in other products, such as cybersecurity and fintech platforms, demonstrating its ability to reshape the world across industries.

Why is this important? According to Ark Invest, by 2037, AI will add $ 30 trillion to global market capitalization. In other words, this technology presents shareholders with a massive opportunity. With this in mind, the two CrowdStrike Holdings (NASDAQ: CRWD) and risk (NYSE: RSKD) look like monster growth stocks in the making. Here’s why.

Image source: Getty Images.

1. Crowd strike

CrowdStrike specializes in protecting endpoints and workloads. Its Falcon platform is designed to secure devices and applications in any environment, from private data centers to the public cloud. To do this, CrowdStrike collects data from millions of devices (e.g. workstations, servers) and then relies on artificial intelligence to block even the most sophisticated attacks. More importantly, CrowdStrike’s scale means that it collects more data than any of its competitors, which makes its AI models particularly good at detecting and preventing threats.

For this reason, CrowdStrike has become the gold standard in many sub-sectors of the cybersecurity industry. For example, International Data Corp. recently recognized Falcon Complete as the best managed detection and response product on the market, citing superior capabilities and a stronger growth strategy than any other solution. With Falcon Complete, the company provides cybersecurity as a service, deploying a team of professional threat hunters who provide around-the-clock protection to customers. This solution is especially useful for businesses that do not have the time or resources to manage their own security and CrowdStrike backs the product with a $ 1 million breach guarantee, showing management’s confidence in the platform. .

Unsurprisingly, this has translated into strong demand. During the second quarter earnings call, CEO George Kurtz said the company has seen an almost 2.5-fold year-over-year increase in Falcon Complete customer base over the past few quarters. CrowdStrike’s business continues to flourish, and the company’s financial performance has been impressive over the past year.

Metric

Q2 2021 (TTM)

Q2 2022 (TTM)

Switch

Returned

$ 654.3 million

$ 1.1 billion

74%

Free movement of capital

$ 177.1 million

$ 364.3 million

106%

Source: YCharts. TTM = 12 rolling months. CAGR = compound annual growth rate. Note: Q2 2022 ended July 31, 2021.

Looking ahead, management assesses its market opportunity at $ 106 billion by 2025, leaving the company with great room for growth. And while CrowdStrike now has more than 13,000 customers, up 81% from the previous year, some existing cybersecurity providers have more than 100,000 customers. From this point of view, this business could grow several times in the years to come. That’s why CrowdStrike looks like a monster stock in the making.

2. Riskified

Fraud is a costly problem in the e-commerce industry. Merchants often turn down valid transactions or accept fraudulent transactions, resulting in missed sales or increased operating expenses related to chargebacks (i.e. cancellation of debit or credit card payments ). Collectively, these issues can have a huge impact on a salesperson’s bottom line.

Riskified aims to solve this problem. Its platform is based on artificial intelligence to prevent fraud and reduce friction at the checkout. To do this, Riskified helps merchants identify consumers who abuse store policies and helps secure stored customer information (i.e., charge cards). Its platform also automates the approval or rejection of online orders, while ensuring minimum approval rates and taking responsibility for all fraudulent charges.

Most importantly, Riskified generates these decisions in real time with 99.8% accuracy. On average, this helps merchants increase revenue by 8% and reduce fraud-related operating expenses by 39%. This value proposition has helped Riskified gain large clients like Wayfair, TicketMaster and Revolution group. As might be expected, the company has posted strong revenue metrics over the past year.

Metric

Q2 2020 (TTM)

Q2 2021 (TTM)

Switch

Returned

$ 140.1 million

$ 205.5 million

47%

Source: Risky SEC Deposits. TTM = 12 rolling months.

Investors should note that Riskified is still not profitable under GAAP. However, during the last quarter, the company generated positive free cash flow, demonstrating the sustainability of its business model.

Looking ahead, Riskified still has a lot to prove, but the company is already building a solid divide around its business. As more and more traders deploy the platform, Riskified collects more data; this makes its AI engine more powerful over time, improving its ability to predict fraudulent transactions. This virtuous circle should be an important growth engine in the years to come and should allow Riskified to differentiate itself from its competitors.

More generally, e-commerce sales are expected to grow at 13.8% per year through 2024, reaching a value of $ 6.4 trillion. This means that Riskified’s big market opportunity is growing very quickly. And given its strong financial performance and strong business model, I think Riskified could turn into a monster growth stock.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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