Artificial intelligence (AI) has taken over Wall Street. It's been the stock market's hottest topic since early last year, but the hype is warranted.
Experts at Statista estimate the AI industry will be worth approximately $184 billion this year, and it should grow to over $826 billion by 2030, a nearly 30% annual growth rate.
Those same experts pegged machine learning as the most significant contributor to AI's growth. Machine learning gives AI a sense of intelligence, allowing it to analyze vast amounts of data for trends and patterns.
Some prominent growth stocks have the opportunity to create significant life-changing wealth for long-term investors. Remember: AI is likely still in its early chapters, so don't assume you're too late.
Consider these two potential millionaire-making AI stocks to buy and hold for the long term:
1. CrowdStrike Holdings
Cybersecurity isn't a new industry, but cyberattacks have become increasingly sophisticated and cause millions of dollars in damages. The increased stakes have created opportunities for next-generation security from companies like CrowdStrike Holdings (CRWD -2.76%). The company's Falcon XDR platform operates in the cloud, using machine learning to look for potential cyberthreats.
If you're familiar with CrowdStrike, you may know it issued a faulty update over the summer that caused a global IT outage. It may take a few quarters to confirm that this embarrassing incident won't hamper the company's growth, but so far, so good. Management is guiding for just over $3.9 billion in revenue for its full fiscal year, representing 27% growth from the prior year.
The company specializes in end-point security but has steadily expanded its platform. Management believes its total addressable market will increase to $250 billion by 2029. In other words, CrowdStrike still only owns about 1.5% of its long-term market.
And the business is already highly profitable. It has generated $1.1 billion in free cash flow over the past four quarters, which has swelled its balance sheet to about $3.5 billion in cash (net of debt). Those are the ingredients for a business that will eventually boost shareholder returns by gobbling up stock with share repurchases.
The stock isn't cheap; shares trade at a clear premium to its industry peers, as measured by enterprise value to revenue. Therefore, consider buying slowly and getting more aggressive when the broader market declines at some point. CrowdStrike is a long-term winner with a potentially decades-long growth runway that could make long-term investors very wealthy.
2. Snowflake
Data is arguably the most crucial ingredient for machine learning, highlighting Snowflake (SNOW -2.95%) as a mission-critical company in the AI industry.
Have you ever heard the expression "garbage in, garbage out"? Data must be well structured for machine learning applications. Snowflake allows companies to store, organize, and search their data through a cloud-based platform. They can also pull data from third-party sources through the company's marketplace.
Snowflake went public at a far too high valuation during a stock market bubble in late 2020. Slowing revenue growth, a CEO change, and competition from Databricks haven't helped the stock over these past four years, and it is still down nearly 60% from its peak. Given the company's rough few years, investors might be surprised at my optimism about Snowflake. The good news is that things are looking up.
The company operates a usage-based billing model, which is brilliant because data grows exponentially. More data means more usage on Snowflake and more revenue.
It essentially builds high net revenue retention (NRR) into the business. Snowflake's NRR was 127% in the third quarter, meaning existing customers spend significantly more once they start using it. Customer count grew 20% year over year in the third quarter, and the company now works with 754 of the companies in the Forbes Global 2000. With these trends, total revenue growth could hover at or above 20% for a long time.
Sure, it stinks that the stock hasn't performed, but this is about looking ahead. Snowflake's price-to-sales multiple was a mind-numbing 183 at its peak! Today, that's down to 16.
That's still not the cheapest you'll find on Wall Street, but a realistic valuation gives investors a reasonable shot at investment returns as the business grows. Snowflake's firm footing in the AI field, where data is exponentially created, could make it a massive company years from now, an outcome that could make investors a lot of money.
