3 Key AI Trends & Investment Strategies
Published Date : 07/11/2024
Discover three emerging AI trends and the top stocks to consider for long-term growth in the tech sector, including Workday, CrowdStrike, and SAP.
If you're bullish on artificial intelligence (AI), there are numerous ways to invest in the opportunities in the tech sector. While chipmakers are a popular choice, there are other types of stocks that provide exposure to promising growth opportunities in the years ahead. According to Gartner, a leading technological research company, several AI trends will be prevalent over the next few years. Here, we explore three stocks that could profit from these trends Workday, CrowdStrike, and SAP.
1. Workday
Many workers are worried that AI could eliminate jobs. Gartner projects that by 2026, about one-fifth of companies will flatten their organizational structures with the help of AI. This shift will reduce costs and operational complexity, making automation more appealing.
One company that stands out in this trend is Workday, which provides enterprise cloud applications to streamline human resource and finance functions. Workday is integrating AI to improve processes, minimize errors, and modernize finance. This should help businesses operate more efficiently with built-in checks and balances, reducing the need for manual review and oversight.
With many businesses already relying on Workday's software, it seems well-positioned to benefit from the AI revolution. Workday boasts strong profit margins of around 20%, and its earnings could surge with a likely increase in demand. The stock is trading at a reasonable forward price-to-earnings multiple of 29 (based on analyst expectations), making it an attractive buy for AI investors.
2. CrowdStrike
As AI advances, so do the tools of hackers and scammers. Gartner predicts that by 2028, one-quarter of enterprise breaches will result from AI agent abuse. These sophisticated attacks will be more numerous and complex.
CrowdStrike is a leading cybersecurity company that uses generative AI to detect threats and notify companies of breaches more quickly. It claims to offer the industry's most complete AI-native defense. Despite facing some bad publicity due to a software outage earlier this year, CrowdStrike maintains that the issue was due to a problematic update, not a breach.
CrowdStrike is a prominent name in cybersecurity and invests in next-generation technologies to keep its clients safe. While it trades at a forward P/E of more than 70, which is high, the company’s bottom line has been improving. As it continues to scale, the multiple should come down as margins improve. If you're willing to be patient, CrowdStrike has the potential to be a big winner in the AI space over the long term.
3. SAP
Trust is a growing concern in the AI world. Safeguards for governance to protect trade secrets, financial data, and other information are becoming increasingly important. Gartner projects that by 2028, 40% of companies will use Guardian Agents to oversee AI agents.
While CrowdStrike can play a role in this, SAP could have an even more critical role. SAP is a trusted name in accounting and finance and can help businesses determine what these Guardian Agents should monitor and how they should evaluate data to ensure proper financial controls. SAP’s enterprise resource planning solutions automate tasks and implement rules to maintain data integrity and comply with necessary protocols, ensuring efficiency and security.
SAP trades at a forward P/E of 34, which might seem expensive given its 6% sales growth last year. However, given the stock's long-term potential, the valuation is justifiable. SAP is well-positioned to benefit from the growing need for AI governance and data integrity.
Conclusion
These three companies—Workday, CrowdStrike, and SAP—stand out as promising investments in the AI sector. Each has a unique approach to leveraging AI, addressing key trends, and providing solutions that businesses will increasingly rely on. Whether it's streamlining operations, enhancing cybersecurity, or ensuring data integrity, these companies are well-positioned for long-term growth.
Frequently Asked Questions (FAQS):
Q: What is the primary concern for businesses regarding AI?
A: Many businesses are concerned that AI could eliminate jobs, leading to organizational flattening and increased reliance on automation.
Q: How does Workday use AI to benefit businesses?
A: Workday uses AI to improve processes, minimize errors, and modernize finance, helping businesses operate more efficiently with built-in checks and balances.
Q: Why is cybersecurity becoming more challenging with AI?
A: As AI advances, hackers and scammers will have more sophisticated tools at their disposal, leading to more frequent and complex attacks.
Q: What role does SAP play in AI governance?
A: SAP helps businesses determine what Guardian Agents should monitor and how they should evaluate data to ensure proper financial controls and data integrity.
Q: What is the forward P/E ratio for Workday, CrowdStrike, and SAP?
A: Workday has a forward P/E of 29, CrowdStrike has a forward P/E of more than 70, and SAP has a forward P/E of 34.