Bull markets are exhilarating for investors, as they typically see stock prices rise rather than fall. However, one downside to this upward trend is that top-tier stocks often reach excessive valuations, which can adversely affect their long-term return potential. Recently, we have begun to witness volatility creeping into the broader market after a period of largely positive performance over the past few years. This shift could present a unique opportunity for investors; if these high-quality stocks experience price declines, they may offer attractive buying opportunities.
Three contributors from the Motley Fool have conducted in-depth analysis and identified CrowdStrike Holdings (CRWD), Amazon (AMZN), and Tesla (TSLA) as must-have stocks for investors to watch during any market pullback. If the market stumbles, these high-flying AI stocks should be high-priority targets for savvy investors.
Justin Pope highlights CrowdStrike Holdings as a next-generation cybersecurity star. In today's landscape, hackers are more sophisticated than ever, and data breaches can incur significant costs for businesses. CrowdStrike is at the forefront of a new wave of high-end cybersecurity companies, utilizing a cloud-based platform powered by artificial intelligence (AI) and data analytics to detect potential threats more efficiently than traditional antivirus solutions.
The company's impressive track record is reflected in its business results. CrowdStrike protects 300 of the Fortune 500 companies and 543 of the Fortune 1,000, generating over $4 billion in annual recurring revenue. It boasts a free cash flow conversion rate of 23% and is generally accepted accounting principles (GAAP) profitable. With a robust balance sheet featuring $3.5 billion in cash (net of debt) and a remarkable revenue growth rate of more than 28% year over year, CrowdStrike is well-positioned for the future.
As the cybersecurity sector continues to grow, CrowdStrike's management estimates a total addressable market of $116 billion, indicating significant room for expansion. However, the stock's valuation may be a concern, with a price-to-sales ratio of 26, one of the highest on Wall Street. The stock's resilience during a recent IT outage controversy highlights its strength, but market volatility could provide an opportunity for investors to acquire shares at a more reasonable price.
Will Healy discusses Amazon, a stock that has thrived by leveraging technology-driven industry trends, with AI being the latest innovation. As the leading cloud infrastructure provider, Amazon serves as the backbone for countless companies utilizing AI-driven services and tools. This technology helps automate tasks, analyze data, and develop new applications, benefiting not only its cloud segment, Amazon Web Services (AWS), but also its e-commerce division.
AI enhances various aspects of Amazon's operations, from personalizing customer experiences to optimizing supply chains and even generating product descriptions. In addition to its core e-commerce business, Amazon's subscription, third-party seller services, and advertising segments also benefit from AI efficiencies. Given Amazon's history of success and its strategic utilization of AI, it is a stock worth monitoring.
Currently priced just over $215 per share, Amazon's recent 11% drop places it in correction territory. Its P/E ratio of 39 appears attractive compared to its historical trading range above 50 times earnings. With a massive market cap of $2.3 trillion and projected revenue growth of 11% in 2024, Amazon is on track for significant growth, making it a compelling investment opportunity as its stock price faces potential declines.
Jake Lerch suggests that Tesla should be on the radar of AI investors. Although the majority of the company's current revenue stems from electric vehicle sales, its future hinges on its AI-powered innovations, such as robotaxis, full self-driving technology, and the Optimus humanoid robot. These projects require substantial advancements in AI, which will ultimately provide significant value to consumers.
Tesla is heavily investing in AI, as evidenced by its Dojo and Cortex supercomputers, which analyze vast amounts of real-world data gathered from its vehicles. While it may take years for these AI initiatives to come to fruition, this creates an opportunity for patient investors. Currently, Tesla shares are down more than 37% from their all-time high, a scenario not uncommon for the company's stock.
Historically, Tesla has experienced pullbacks of 25% or more on four separate occasions since 2020, each time representing a buying opportunity for long-term investors. For instance, a $10,000 investment made during the initial pullback in 2020 would now be worth over $121,000, despite recent declines. The lesson for investors is to remain focused on long-term potential rather than short-term fluctuations, making this correction an ideal entry point for those looking to invest in Tesla’s future.
As the market experiences volatility, investors should consider high-quality stocks like CrowdStrike, Amazon, and Tesla as potential buying targets. Each of these companies stands out for their innovative use of AI and strong growth prospects. By remaining vigilant during market pullbacks, investors can position themselves to capitalize on these compelling opportunities for long-term success.
