Two Straightforward Expansion Shares to Invest in with $5,000 During the S&P 500 Rising Market
In 2024, the S&P 500 soared past 50 record highs, extending its bull market that began post-October 2022. Tech stocks, particularly those embracing emerging trends like artificial intelligence (AI), led the charge. Two such companies, Datadog and CrowdStrike, have not only survived but thrived in this environment, with AI playing a significant role in their growth strategies.
If you've got $5,000 to spare in your investment portfolio, consider splitting it between Datadog and CrowdStrike. Let's dive into why:
The case for Datadog
In today's 24/7 digital world, businesses demand seamless online experiences to retain customers. Datadog, a cloud observability platform, helps companies monitor their digital infrastructure, providing real-time alerts for potential technical issues. Serving over 29,000 businesses across various industries, the company's cloud expertise has now culminated in its foray into the AI space.
Recently, Datadog launched an observability tool for large language models (LLMs), crucial to AI chatbots and software applications. This tool empowers developers by monitoring costs, troubleshooting technical issues, and evaluating output quality. At a December conference, Datadog showcased several AI integrations with Amazon Web Services (AWS), enhancing the efficiency and performance of LLMs.
As per a 2024 McKinsey study, approximately 72% of organizations utilize AI in at least one business function. However, only around 8% have incorporated it into five or more. This early-stage AI adoption means a growing demand for monitoring tools like those Datadog provides.
With Q3 2024 revenue reaching $690 million, Datadog's AI-native customers contributed 6% of that sum, marking a hefty increase from the 2.5% in the previous year. Moreover, around 3,000 customers were using Datadog's AI integrations at the end of Q3 2024.
While Datadog's P/S ratio isn't the cheapest in the enterprise software, cloud, and AI markets, it currently trades at a 26% discount to its long-term average P/S ratio, offering potential for returns.
The case for CrowdStrike
CrowdStrike, another tech titan, faced a major challenge in 2024—a corrupted software update that crashed millions of computers around the world. Despite these setbacks, the company's fortunes reversed remarkably, regaining almost all of its lost value.
The cybersecurity market is characterized by fragmentation, requiring businesses to source various products from numerous vendors. CrowdStrike breaks from this mold with its all-in-one solution, the Falcon platform. Its capabilities range from cloud networks to employee identity protection to safeguarding endpoints.
Moreover, CrowdStrike leverages AI to power its 28 modules, ensuring fully automated protection. Its AI models are trained on an impressive 2 trillion security events each day, continually improving efficiency and accuracy. In Q3 2024, a record 66% of CrowdStrike's customers were using at least five Falcon modules.
In October 2024, CrowdStrike reported a $4 billion annual recurring revenue (ARR), highlighting robust growth. The company aims to hit the $10 billion ARR mark by 2031, expressing confidence in its market potential.
Although CrowdStrike's stock trades at a premium valuation, its revenue growth almost twice that of its main rival, Palo Alto Networks, warrants this premium. Considering CrowdStrike's goals to reach an ARR of $10 billion by 2031, its stock placement at a forward P/S ratio of just 8.7 suggests substantial upside potential.
Investors should seriously consider adding Datadog and CrowdStrike to their portfolios to capitalize on the immense promise of AI in the business world. Moreover, as these companies continue to expand their AI capabilities and market presence, their stock value is likely to follow suit.
- Given the increasing adoption of AI in businesses, with 72% of organizations using it in at least one function in 2024, Datadog's observability tool for large language models could see considerable demand, as it helps monitor costs, troubleshoot issues, and evaluate output quality.
- By 2025, the fragmented cybersecurity market could benefit from CrowdStrike's all-in-one solution, Falcon, which offers cloud networks, employee identity protection, and endpoint security, all powered by AI.
- As technology continues to evolve, investing in 2025 could mean capitalizing on the potential of AI-focused companies like Datadog and CrowdStrike, both of which have seen significant growth in their AI-related products and services.
- With Datadog's AI-native customers contributing 6% of its Q3 2024 revenue, and 3,000 customers using its AI integrations, and CrowdStrike's robust ARR growth and goals to reach $10 billion by 2031, investing in their stocks might yield substantial returns in the future.
