United States equities have calmed down since their rally in the first quarter of 2024. The S&P 500, Nasdaq, and Russell 2000 have all dipped slightly from their previous highpoints. While market trends, such as the generative AI craze, may have been enough to lift stocks to new heights, nowadays analysts and investors are increasingly worried about how stretched trading multiples have become. As equities take a dip in the U.S., it’s probably about time to think about which stocks to buy as valuations fall. Given the traction AI-related technology companies have received both in 2023 and 2024, machine learning stocks could also receive a lot of love in 2024.
Machine learning (ML) is a branch of artificial intelligence (AI) that enables computers to learn from data and experience without explicit programming. Over the past decade, the technology has also garnered attention for its numerous applications. Below are three machine learning stocks that could 10x your capital if you choose to hold them long term.
CrowdStrike (CRWD)
CrowdStrike (NASDAQ:CRWD) is a cybersecurity firm that specializes in cloud-based endpoint protection and threat intelligence services. The cybersecurity firm employs a host of machine learning algorithms to detect cyber threats on a company’s network and across its endpoints. The company already seems to be feeling the impact of the current market turbulence. Shares have fallen more than 2% since the start of the second quarter, and it’s most likely not due to anything wrong with the business.
The company’s Q4 earnings underscored how a cybersecurity firm could grow even during economic uncertainty. In particular, CrowdStrike beat earnings Wall Street estimates and saw top-line growth in 2023, reaching 54% on a year-over-year basis, while revenue for the quarter increased 45% year-over-year. Despite the cybersecurity industry as a whole struggling with growth, CrowdStrike has continued to significantly improve top-line figures year-over-year. The company has also avoided job cuts unlike companies like Zscaler (NASDAQ:ZS) and SentinelOne (NYSE:S).
However, CrowdStrike’s valuation multiples have risen too high. CrowdStrike’s shares had climbed more than 140% by the end of 2023. Nowadays, CrowdStrike’s shares trades at around 80.0x forward earnings, after having risen more than 22% since the start of 2024. Once CrowdStrike’s valuation comes down a bit, it may be a good time to consider investing in the company’s shares. As enterprises continue to pursue digital transformation plans, CrowdStrike will be a clear beneficiary.
Palantir (PLTR)
While Palantir Technologies (NYSE:PLTR) was skyrocketing in Q1’2024, at one point increasing as much as 54%, I was sounding the alarm on its valuation. I pointed out the data analytics firm was being valued too much as a fully-grown AI company when it hadn’t, in my eyes, achieved that status yet. PLTR’s price-to-earnings multiple hit 80.2x forward earnings in early March. It did not really make sense a company that was just rolling out its AI platform was valued way higher than Nvidia (NASDAQ:NVDA).
Since then, however, PLTR shares have fallen more than 16% and its valuation has come down some. Thus, now may be a good time to consider PLTR as a long-term investment. Although I’ve had quips about the company’s valuation, Palantir still has a great business. The data analytics firm started out serving the defense and intelligence sectors by providing comprehensive data analytics products. Back then, Peter Thiel was at the helm of the firm. Nowadays, Palantir has broadened its horizons to servicing customers in healthcare, energy, and finance industries with both on-premises and cloud software solutions. At the end of 2023, Palantir counted 497 companies amongst its broad customer base.
Moreover, Palantir has made significant strides in improving profitability, and although its new Artificial Intelligence Platform (AIP) may be initially overhyped, the platform will likely boost revenue growth and earnings at some point in the future. In other words, if bought at a decent price, PLTR shares could be a worthwhile long investment in machine learning.
International Business Machines (IBM)
International Business Machines (NYSE:IBM) is a well-established technology business that employs machine learning in a number of its core businesses. Not to mention, IBM’s price-to-earnings multiple is just around 18.7x forward earnings, making the tech giant a great candidate to deliver 10x returns to a company’s portfolio.
Given we’re in the beginning of the generative AI age, I would say IBM’s machine learning and AI businesses are just getting started. The company’s watsonx platform allows enterprises to leverage the most optimal ML and AI models to meet their analytical needs. Moreover, IBM’s AIOps product also uses machine learning to help automate certain tasks related to operating and monitoring cloud infrastructure, thereby minimizing costs. These kinds of AI and ML-based tools will not only be useful for a number of enterprises but also crucial to maintaining modern businesses in the digital age.
Another novel area where IBM can drive value is its quantum computing business. Currently, machine learning and generative AI are new big things in tech, but quantum computing is likely to surpass the capabilities of both in certain applications. Outside of operating its own physical quantum computer, IBM has worked on making quantum computing accessible through its a cloud-based quantum computing service called IBM Quantum Experience, which allows customers and researchers to access its quantum hardware and software.
IBM, now flusher with free cash flow these days, could make even more breakthroughs in machine learning and quantum computing, spurring innovation and earnings growth in the long run.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.