There’s a joke going around in investing circles that AI is the only thing propping up the market today. If it wasn’t for the buzz around AI, we would essentially be in a bear market.
While I wouldn’t go as far as to say that AI is the only thing saving us from a bear market, there’s simply no denying that – no matter what the doubters say – AI IS the next big thing. Get on board or get left behind.
The problem is that too many companies are shamelessly exploiting the buzz around AI to inflate their own stock price. Every product that could be even tangentially related to machine learning or AI is being hyped up as “AI-powered”.
It’s going to be tough for investors to separate the wheat from the chaff – which is where newsletters like this come in.
And that brings us to today’s daily stock pick. It’s a company that HASN’T been hyping up AI, even though its core product – machine learning – is a fundamental precursor to AI, and will only see expanding demand as AI expands the entire market.
Its stock is also down over 50% from its peak – but recent earnings have been highly positive. Now may be a good time to get in.
Splunk Inc. (SPLK)
Splunk’s platform uses machine learning to analyze high volumes of machine-generated data – for example, data generated by network security, anti-malware, and customer-facing applications. In short, companies use Splunk’s platform to optimize the performance and security of their infrastructure. Their list of customers is impressive, including names like Stripe, Honda, Lenovo, Boeing, Wells Fargo, Northrop Grumman, and Slack.
What makes the company appealing is its turnaround story. Last year, it brought in CEO Gary Steele to turn the company’s fortunes around. Splunk had just lost $1.3 billion in for the fiscal year ending Jan 31, 2022, and it only had enough cash to last one more year.
Steele succeeded. For the fiscal year ending Jan 31, 2023, Splunk brought its losses down to under $300 million – and even turned a profit in the final quarter.
Its free cash flow – the primary metric the company now focuses on – has been surging, almost hitting $500 million in the most recent quarter. That was more than the previous four quarters combined. This was a sign of good management, enforcing strict cost discipline without sacrificing revenue growth.
With Splunk’s stock price now down over half since its 2020-high, I believe there’s an attractive entry opportunity here. Splunk is a powerhouse in its field – having earned numerous industry leader awards – and its management places its total addressable market at $100 billion. With skilled management now in place, Splunk could have a long way left to run.
To your wealth,
Felix @ Ace of Investing