2 software companies that use generative artificial intelligence to accelerate results

While the darlings of the pandemic-era boom, software stocks have come under fire in recent years. This was due to two main reasons – the rapid rise in interest rates following the pandemic and the potential disruption of generative AI.

GenAI has as much potential to disrupt certain software companies as it does to improve their businesses, so it’s important to choose wisely in this area. Looking at comments from the latest Q2 earnings season, the following software leaders appear to be gaining the edge over competitors in the GenAI era. Therefore, they should be stocks of interest to software investors everywhere for years to come.

CrowdStrike

CrowdStrike (CRWD -2.73%) had a rough July when a buggy software update didn’t mix well with the Windows operating system, causing worldwide outages and serious business disruption.

Importantly, however, the outage was not related to a security breach, but rather a self-inflicted compatibility issue. Meanwhile, the company’s stronger-than-expected results and guidance on Aug. 28 seemed to show CrowdStrike’s resilience even in the face of this massive PR disaster. This only goes to show the strength of CrowdStrike’s AI-driven business model and its status as a leading emerging player in cybersecurity.

CrowdStrike, founded in 2011, had artificial intelligence in mind when it was conceived. The company’s original endpoint protection product would deter breaches and send data back to CrowdStrike’s centralized threat graph in the cloud, which would use that data to constantly improve algorithms and stay one step ahead of the bad guys.

This is essentially “crowdsourcing” data that would constantly update the entire installed base to reflect that new information. So CrowdStrike’s algorithms became more sophisticated as the company grew, in a beneficial network effect.

Recent results have shown that, along with some discounts for affected customers, customers are largely willing to look past the unfortunate incident on July 19 in light of this superior operating model.

Additionally, last quarter’s results show that new AI capabilities have taken off, particularly in some of CrowdStrike’s newer products. CEO George Kurtz pointed to two big customer wins that occurred after July 19 in the company’s relatively new AI-powered SIEM (security information and event management) product. SIEM correlates first- and third-party data to prevent intrusions before they happen, and CrowdStrike has updated its SIEM product under the same unified Falcon AI platform for the next generation.

One recent client win was actually an expansion with an unnamed generative AI company, showing that even the most sophisticated AI companies are choosing CrowdStrike — even after July 19th. and cloud security as “hypergrowth” areas, as this product cohort grew 85% year-over-year, playing a large role in the company’s overall revenue growth of 32%.

Now that CrowdStrike has a full suite of cybersecurity products beyond endpoint protection, look for companies to standardize more on the CrowdStrike platform in the age of AI.

MongoDB

The database company MongoDB (MDB 2.65%) it fell earlier this year when it led to a slowdown. One might have thought that MongoDB would be in pole position in the AI ​​era, as its innovative document architecture is much better suited to handle various types of unstructured data useful for AI than the traditional rows and format approach.

That should hold true going forward, but management attributed the slowdown in enterprise spending on AI infrastructure ahead of investing in AI-based software. And it’s building and using AI-based applications that will really benefit MongoDB financially.

But MongoDB’s second-quarter results were much better than initial guidance, with respectable 13% year-over-year growth, with its Atlas database-as-a-service offering up 27%. As a result, the stock rose 18% on Friday, August 30.

While these results were better than forecast, management expects much greater benefits from the AI ​​revolution. CEO Dev Ittycheria said the benefits AI brings to MongoDB is a matter of when, not if. Given that data is the fuel for AI and therefore AI applications, MongoDB sees strong growth potential for databases in general and MongoDB specifically.

One area where AI has the potential to turbocharge MongoDB’s results is in modernizing legacy applications. The process of migrating data from old databases, then rewriting old application code is cumbersome and risky. So while MongoDB has been able to handle a lot of young enterprises starting with a “clean sheet of paper,” this factor has limited MongoDB’s ability to modernize legacy applications at large enterprises.

But generative AI is changing that, making the migration process easier and much less risky. This has the potential to open up a huge market segment for MongoDB. Ittycheria noted on the conference call with analysts:

The first results of these pilot projects are very exciting as our customers are experiencing significant reductions in retrofit time and costs. In particular, we have seen dramatic improvements in time and cost for rewriting application code and generating test suites. We are seeing increasing interest from customers looking to upgrade their legacy applications, including large enterprise customers.

The overall database industry is over $80 billion, but MongoDB’s revenue in the last 12 months was only $1.82 billion. As the AI ​​transition fits the document database architecture and helps unlock opportunities in large enterprises, look for MongoDB to make big share gains as the AI ​​transition ramps up in the coming years.