2 Magnificent Artificial Intelligence (AI) Stocks That Will Start Buying Before 2025

There are three full months left in 2024, but it’s been a spectacular year for investors so far. benchmark S&P 500 the index is up nearly 21%, beating its average annual return of 10.5% since its inception in 1957.

Artificial intelligence (AI) was the dominant theme in the market throughout 2023 and continued into 2024 in a big way with an increasing number of companies adopting the technology. This trend is likely to continue, which is why investors should consider buying AI stocks before 2025.

Here’s why CrowdStrike (NASDAQ: CRWD) and Spotify technology (NYSE: SPOT) could be two great options.

1. CrowdStrike: 2025 could be a comeback year

CrowdStrike is a leader in the cyber security industry. However, on July 19, the company pushed a corrupt software update that crashed more than 8.5 million customer computers, costing some of its biggest customers an estimated $5.4 billion. It sent CrowdStrike shares down 36% at the low point, but recent comments from CEO George Kurtz suggest the fallout may be less severe than investors expected.

The cybersecurity industry has a history of fragmentation, meaning companies have had to buy different products from different vendors to complete their security package. CrowdStrike’s flagship Falcon platform, however, is one of the only complete services on the market for enterprises. It protects cloud networks, employee identities, endpoints and more, with artificial intelligence at its core to power automated threat hunting and incident response.

CrowdStrike’s AI models are trained on more than 2 trillion security events every day, so they’re constantly improving over time. The company also launched a virtual assistant last year called Charlotte AI, which is built into the Falcon platform. It can autonomously produce incident summaries, which reduces manual investigative work, and can also be called upon to look for new threats at any time. Such features allow Charlotte AI to save users about two hours a day, on average.

Companies can select from 28 cybersecurity modules (products) on the Falcon platform, and during the second fiscal quarter 2025 (ended July 31), CrowdStrike said 65 percent of customers were using at least five. In addition, the number of deals signed for eight or more modules increased by 66% year-over-year, which is where spending really increases.

During the Q2 conference call with investors, Kurtz said that the July 19 incident will result in many future contracts being delayed, but the vast majority still remain in progress (meaning they have not been canceled). CrowdStrike stock has risen steadily since those comments and hit $299 as of Friday, September 20, its highest point since the blackout.

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The company ended the second quarter with annual recurring revenue of $3.8 billion, but management reiterated its plan to reach $10 billion over the next seven years. With the stock still trading 23% below its all-time high, now could be a great time for investors to buy ahead of what could be a strong rebound next year.

2. Spotify: The road to 1 billion users

Spotify is the largest music streaming platform in the world, with an estimated market share of 31.7%, according to Statista. Tencent Music it is a distant second with a market share of just 14.4%. Most music streaming platforms offer very similar catalogs of content, so they can only differentiate their service through pricing, technology features, and offering other content.

Spotify is arguably the industry’s most important innovator. It has implemented AI-based algorithms in its recommendation engine for years to ensure users see the most relevant content to keep them engaged, but the company has also rolled out a number of new AI features lately. Its AI DJ learns what each user likes and compiles personalized playlists, with in-play commentary from a software-generated voiceover. Similarly, Spotify’s new AI Playlist tool allows users to enter requests (referencing emotions or even a place) to generate a unique playlist.

The company is also experimenting with AI on its advertising platform. It recently launched a new tool called Quick Audio, which allows companies to quickly generate scripts and voiceovers for their ads, saving significant time and money in the creative process.

In the second quarter of 2024, Spotify had 626 million monthly active users, a 14% increase from the same period last year. It had 246 million Premium users paying a monthly subscription, which was 1 million more than management forecast (the rest were free users that are monetized by advertising). Premium subscribers are important because they contribute about 88% of Spotify’s total revenue.

According to Wall Street’s consensus estimate, Spotify is on track to generate $17.6 billion in revenue for the full year 2024. But the company has some ambitious long-term goals. It wants to grow its monthly active user base to 1 billion by 2030, which could lead to a whopping $100 billion in annual revenue about two years after that.

Spotify raised its subscription prices last year and rolled out a new increase in most major markets a few months ago. Each of its paying subscribers will be much more valuable by the end of the decade if this trend continues. Additionally, new innovations in its advertising platform could make Spotify a more attractive destination for companies looking to reach potential customers, making each of its free users more valuable over time.

Spotify’s stock is currently trading in line with its 2021 all-time high, but its price-to-sales ratio is just 4.7, which is 28% below its peak of 6.5 (because the company has significantly increased its 2021 revenue ). Given its long-term outlook, the stock still has upside potential for the year ahead and beyond.

Where to invest $1,000 right now

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*The stock advisor returns as of September 23, 2024

Anthony Di Pizio has no position in any of the shares mentioned. The Motley Fool has positions in and recommends CrowdStrike, Spotify Technology and Tencent. The Motley Fool has a disclosure policy.

2 Magnificent Artificial Intelligence (AI) Stocks to Start Buying Before 2025 was originally published by The Motley Fool