The Nasdaq Compound entered a bear market in mid-March and losses accelerated in the second quarter as investors reacted to worsening inflation. At the end of June, the tech-focused index was 31% off its peak. But that hasn’t stopped hedge fund managers John Overdeck and Steve Cohen from investing in growth stocks.
In the second quarter, Overdeck increased its stake in Nvidia (NVDA -1.55%) more than fivefold, making it its sixth position. And Cohen increased his stake in CrowdStrike Holdings (CRWD -0.41%) more than sevenfold, making it its fourteenth position.
Either way, the massive capital injection involves strong conviction, and I think Overdeck and Cohen are on the right track. Here’s why investors can buy the two growth stocks with confidence today.
Nvidia: the gold standard of supercomputing
Nvidia’s core innovation is the graphics processing unit (GPU), a custom-designed chip for complex computing tasks such as rendering realistic visual effects and accelerating artificial intelligence (AI) applications. But in recent years, Nvidia has become more than a chipmaker, evolving into a robust computing company.
Nvidia’s high-performance networking solutions have boosted its relevance in data centers, and its growing portfolio of AI software has driven adoption in industries such as retail, healthcare and cybersecurity. But Nvidia Omniverse is perhaps the most exciting innovation. The platform allows creators to collaborate on the design of virtual worlds and other 3D projects, and it allows engineers to run physically accurate simulations to train autonomous robots and self-driving cars.
These innovations have cemented Nvidia’s status as the benchmark for graphics and accelerated computing. Its technology has been adopted by all major cloud providers, and Nvidia has over 90% market share in workstation graphics and supercomputer accelerators. Additionally, management says gross margin is expected to increase as software represents a larger percentage of revenue, meaning Nvidia is poised to become more profitable over time.
However, some investors are overlooking this long-term potential amid short-term headwinds. Admittedly, Nvidia posted disappointing financial results in the last quarter, led by a 33% drop in game sales as consumers battled high inflation. Total revenue rose just 3% to $6.7 billion and earnings fell 72% to $0.26 per diluted share. But inflationary headwinds are temporary and the overall investment thesis is still intact.
Artificial intelligence is perhaps one of the most transformative technologies in human history, and the Nvidia brand has become synonymous with top-notch AI. The company has consistently achieved top results in the MLPerf benchmarks, a series of standardized tests designed to measure the performance of AI hardware and software.
Additionally, realistic graphics will always be essential for the gaming and media industries, and demand for Nvidia chips and software is expected to grow as use cases like augmented reality, virtual reality, and the metaverse continue to grow. to take shape. Management estimates the addressable market at $1 trillion, which leaves the company plenty of room for future growth.
Currently, the shares are trading at 13.4 times the sale – a discount from the five-year average of 17.1 times the sale – which means that now is the time for patient investors to buy this stock. growth.
CrowdStrike: The Leader in Endpoint Protection
Digital transformation has been an accelerator for cybercriminals. As organizations rushed to adopt cloud computing and software as a service, many failed to implement adequate security measures. At the same time, the dark corners of the internet have allowed hackers to sell stolen data with relative ease. As a result, the cost of an average data breach hit a new high of $4.35 million in 2022, according to IBM.
Cybersecurity specialist CrowdStrike has capitalized on this opportunity. Its AI-powered platform includes 22 software modules, each delivered through a single lightweight agent that can be installed without rebooting the device. This sets CrowdStrike apart from other vendors and significantly reduces friction for customers. Additionally, CrowdStrike’s AI learns about 1 trillion security signals every day, and that scale makes its platform particularly effective at preventing cyberattacks, according to CEO George Kurtz.
These competitive advantages have made CrowdStrike the market leader in endpoint (device) security and managed detection and response. CrowdStrike is also gaining market share in other markets, including cloud workload security and threat intelligence.
Over the past year, CrowdStrike grew its customer base by 57% and maintained its retention rate above 120%, meaning the average customer spent at least 20% more. This cumulative effect fueled stunning financial results in the first fiscal quarter of 2023 (ended April 30, 2022). Revenue climbed 61% to $488 million and free cash flow climbed 34% to $158 million.
Looking to the future, CrowdStrike pegs its market opportunity at $71 billion by 2024, and recent software innovations such as CrowdStrike XDR – a product that supercharges its AI engine with safety data gathered from partners such as Z-scale and Okta – should help the company take advantage of this opportunity.
Shares are currently trading at 26.9 times sales. It’s expensive, but it’s still cheaper than the three-year average of 37.1 times sales. That’s why risk-tolerant investors should buy a few shares of this growth stock today.
Trevor Jennewine holds roles at CrowdStrike Holdings, Inc., Nvidia, Okta, and Zscaler. The Motley Fool holds posts and recommends CrowdStrike Holdings, Inc., Nvidia, Okta, and Zscaler. The Motley Fool has a disclosure policy.
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