2 AI Growth Stocks to Buy Now and Hold for the Long Term

Artificial intelligence (AI) spending on hardware, software and services totaled nearly $200 billion last year, according to Grandview Research. But that number is expected to grow 820 percent to more than $1.8 trillion by 2030. In other words, the AI ​​market is predicted to grow by 37 percent annually by the end of the decade.

Many companies will benefit from this rising tide, but Cloudflare (NYSE: NET ) And Service Now (NYSE: NOW ) stand out because they have a strong foothold in the respective markets. Additionally, both stocks trade at reasonable valuations relative to Wall Street’s growth expectations.

Here’s what investors should know.

1. Cloudflare

Cloudflare operates a connectivity and security cloud. Its platform accelerates and protects software and infrastructure in private data centers and public cloud environments. The company also offers a developer platform that lets businesses tap its network to build and deploy websites and applications, and is specifically focused on predictive analytics for artificial intelligence applications.

Cloudflare has material advantages in speed and scale. In particular, the company operates the fastest cloud network and developer platform on the market. It also handles about 20% of web traffic, providing deep insight into performance issues and security risks across the Internet. Cloudflare uses this data to consistently route traffic and block threats more effectively.

These features have helped the company gain a strong position in many cloud services markets. For example, International Data Corporation recently recognized its leadership in zero-trust network access, as a key strength in powering threat detection through machine learning models trained with massive amounts of Internet traffic. Referred to planting. Furthermore, Forrester Research Cloudflare was recently recognized as a leader in edge development platforms, citing a better product and stronger development strategy than peers.

Cloudflare reported strong financial results in the fourth quarter. Users grew 17% to 189,791, and the average customer spent 15% more. In turn, revenue increased 32% to $362 million, and non-GAAP (adjusted) net income increased 148% to $53 million. Additionally, management said that close rates and average deal size improved significantly compared to the previous quarter, indicating increased sales force productivity.

Going forward, Cloudflare is well-positioned to take advantage of AI, given its leadership among edge development platforms. Additionally, its network acts as a unified control plane across private data centers and public clouds, but vendors such as Amazon And Microsoft Don’t offer the same support. Finally, Cloudflare is building out its network. Nvidia Optimized GPUs for AI estimation.

Last year, CEO Matthew Prince said, “By our estimates, Cloudflare is the most used cloud provider among leading AI startups.” He also noted that the company was “uniquely positioned to be a leader in AI inference.”

With that in mind, Wall Street expects CloudFlare to grow revenue by 25 percent annually over the next five years, but increased that estimate if the company becomes a major player in AI. There is room left. In this context, its current price of 24.7 times sales is affordable. The stock may be volatile in the near term, but investors with a five-year time horizon should consider buying a short position today.

2. Service Now

ServiceNow helps businesses unify and digitize workflows across disparate systems. In particular, its platform integrates with third-party applications from vendors such as Microsoft. Atlassian To address four primary use cases: technology workflows such as IT service, customer workflows such as customer service, employee workflows such as human resources, and creative workflows such as application development and task automation.

ServiceNow is known for its dominance in IT service and IT operations management. But industry analysts have recognized its leadership in other software verticals as well, including artificial intelligence (AI) for IT operations, digital process automation, and low-code application development platforms.

The company reported solid financial results for the fourth quarter. Revenue rose 26% to $2.4 billion, and non-GAAP net income rose 36% to $3.11 per share. In addition, the residual performance obligation (contracted revenue that has not been recognized) climbed to 29 percent, indicating a potential increase in sales in the coming quarters. This momentum is due in part to demand for generative AI.

After the launch of ChatGPT, ServiceNow was quick to take advantage of generative AI. In fact, it was one of the first major software platforms to bring creative AI capabilities to its users when it launched Now Assist last September. Now Assist brings the ability to create content, summarize information, and automate interactions for IT service, field service, customer service, and human resources teams.

However, the innovation at ServiceNow extends beyond AI. The company launched a finance and supply chain workflow last year that simplifies and automates the sourcing and procurement of goods and services. Those tools are especially timely as modernizing enterprise resource planning (ERP) systems has become an IT focus area.

In short, ServiceNow has a strong presence in several IT software verticals. The company is growing rapidly, and it is still bringing new products to market at a steady pace. Still, ServiceNow taps into a tiny fraction of its $220 billion addressable market. This lays the foundation for strong sales growth for the foreseeable future.

In fact, Wall Street expects the company to grow sales at a 20 percent annual rate over the next five years. This consensus estimate makes its current sales price of 16.9 times reasonable. Investors with a five-year time horizon should feel comfortable buying a short position in this growth stock today.

Should you invest $1,000 in Cloudflare now?

Before buying stock in Cloudflare, consider this:

gave Motley Fool Stock Advisor The analysis team only indicated what they believed. 10 Best Stocks For investors to buy now… and Cloudflare was not one of them. 10 stocks that made the cut could generate monster returns in the coming years.

Stock Advisor Provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular updates from analysts, and two new stock picks each month. gave Stock Advisor The service has more than tripled the return of the S&P 500 since 2002*.

See 10 stocks

*Stock Advisor returns till March 8, 2024.

John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Trevor Genuine holds positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Amazon, Atlassian, Cloudflare, Microsoft, Nvidia, and ServiceNow. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a Disclosure Policy.

Artificial Intelligence (AI) Market Could Grow 820% by 2030: 2 AI Growth Stocks to Buy Now and Hold Long-Term Originally published by The Motley Fool.

Leave a Comment