Despite a recent market-wide sell-off, five prominent technology companies with significant operations in artificial intelligence are trading near key buy points. Oracle, Zscaler, CrowdStrike, Palantir, and Snowflake are being closely watched by investors as their involvement in AI continues to drive strong financial performance and market interest.
These software companies, specializing in areas from data analytics to cybersecurity, have demonstrated resilience. Their stock movements suggest underlying strength in the AI sector, even as broader market pressures cause temporary dips.
Key Takeaways
- Five major AI-related software stocks are positioned near potential entry points for investors following a market downturn.
- The companies include Oracle, Zscaler, CrowdStrike, Palantir, and Snowflake, each with a distinct role in the AI ecosystem.
- Despite recent price volatility, these firms show strong underlying performance metrics and growth in AI-driven revenue streams.
- All five stocks exhibit an Average True Range (ATR) below 5%, indicating less extreme price volatility compared to other high-growth stocks.
Market Volatility Creates Opportunities in AI Sector
A recent downturn in the stock market has impacted many sectors, but technology companies focused on artificial intelligence are showing notable stability. Five key players in the software industry have settled near attractive buy points, drawing attention from market analysts. These companies are central to the ongoing AI boom, providing critical infrastructure, security, and data analytics services.
The companies in focus are Oracle (ORCL), Zscaler (ZS), CrowdStrike (CRWD), Palantir (PLTR), and Snowflake (SNOW). While a market-wide sell-off on Friday caused their stock prices to decline, they remain close to technical entry levels. This situation presents a potential opportunity for investors who believe in the long-term growth of the artificial intelligence market.
Understanding Average True Range (ATR)
All five stocks have a 21-day Average True Range (ATR) below 5%. The ATR is a technical analysis indicator that measures market volatility. A lower ATR, like that seen in these stocks, typically suggests more incremental price movements rather than large, sudden swings. This characteristic can be appealing to investors looking for stability in a high-growth sector.
Oracle Focuses Heavily on AI Infrastructure
Oracle's stock is recovering after a significant 36% price increase on September 10. The company's shares are now testing a trendline entry point near the $300 price level, making it a key stock to watch. This renewed focus on AI is highlighted by the renaming of its annual customer conference from CloudWorld to AI World.
The initial surge in September was not driven by the company's quarterly results, which missed expectations. Instead, investors responded to Oracle's massive backlog of nearly $500 billion in contracted revenue for AI-related projects. This indicates a strong future revenue stream tied directly to the AI industry's expansion.
Strategic Partnerships and Challenges
A major factor in Oracle's AI strategy is its partnership with OpenAI and SoftBank. The collaboration aims to build new data centers in Ohio, Texas, New Mexico, and another Midwest location. Oracle will develop these sites and rent cloud computing capacity to OpenAI through its Oracle Cloud Infrastructure (OCI) division.
However, the path has not been entirely smooth. The stock experienced a 7% drop after a report from The Information suggested Oracle was operating on thin profit margins for the cloud servers it rents to AI startups. Concerns about the high costs required to meet AI demand have contributed to some of the stock's recent volatility.
Oracle holds an IBD Composite Rating of 92, placing it fourth in the database software industry group. Its ATR is currently 4.76%.
Zscaler Leads in Cloud-Based Cybersecurity
Zscaler, a provider of cloud-based cybersecurity software, recently moved above its buy point of $318.46 before pulling back. The stock's movement suggests it may be consolidating before attempting another push to new highs. Despite the reversal, the stock finished the week with a slight gain.
The company is a major player in corporate network security, particularly in the Secure Access Service Edge (SASE) market. According to a recent note from a Jefferies analyst, industry checks show Zscaler and Palo Alto Networks are the top choices among customers for SASE solutions. Jefferies maintains a buy rating on Zscaler stock.
"Industry checks show that Zscaler and Palo Alto Networks are the top picks among customers for SASE." - Jefferies Analyst Note
Zscaler's financial performance is strong. The company has a three-year earnings per share (EPS) growth rate of 66% and a three-year sales growth rate of 34%. In the last four quarters, its earnings climbed between 18% and 40%, while sales grew by 21% to 26%.
With a Composite Rating of 96, Zscaler is ranked as the No. 3 stock in the cybersecurity group. It has an EPS Rating of 98 and an ATR of 3.20%.
CrowdStrike Aims for Breakout Amid High Expectations
CrowdStrike is attempting to break out from a cup-with-handle base pattern, with a buy point at $507.20. The stock has faced resistance at the $500 and $518 levels throughout the year. On Friday, it briefly touched $517.41 before declining 3% to close at $493.79.
The company's stock jumped nearly 13% on September 18 after it issued bullish guidance for the fiscal year. CrowdStrike reiterated that its net annual recurring revenue is expected to reaccelerate to 40% growth or more in the second half of the current fiscal year. It also projected growth of 20% or better for the next fiscal year.
Strategic Acquisitions and Past Incidents
Analysts have responded positively to CrowdStrike's strategy. Wedbush analysts referred to the company as the "gold standard" in cybersecurity, noting its new AI products position it as a leader in agentic AI. The company has been active in acquisitions, purchasing Onum Security in August and AI security firm Pangea Cyber for $260 million in September.
However, the company faced a major challenge in July 2024 when a faulty software update caused millions of computers to crash worldwide. The outage led to losses estimated at over $5 billion. The stock dropped more than 45% but recovered to its pre-crash level by November of that year.
Palantir's Dual Focus on Defense and AI
Palantir, a company known for its data analytics tools used by defense and intelligence agencies, is also making significant inroads in the commercial AI space. The stock has been attempting to break out of a cup-with-handle base with a buy point of $185.75. The pattern is considered late-stage, which can make a breakout more vulnerable to failure.
The stock has seen incredible growth, soaring over 1,600% since a breakout in May 2023. Recently, it faced a setback on October 3 when reports of security flaws in a prototype battlefield communications network caused a 7.5% drop. Palantir and its partner, Anduril Industries, stated that the issues had been resolved and the reports were based on outdated information.
Palantir has a Composite Rating of 99, the highest among approximately 120 companies in the enterprise software group. Its ATR is 3.92%.
The company's financial results have been impressive. Over the past four quarters, EPS climbed by 43%, 75%, 63%, and 78%, while sales growth accelerated from 30% to 48% over the same period.
Snowflake Solidifies Position in Data Management
Snowflake, a cloud-based data management firm, briefly surpassed its $249.99 buy point this week before retreating. A bullish sign for the stock is its relative strength line, which recently hit a new high. The stock's initial breakout attempt was fueled by a positive report from a UBS analyst.
UBS analyst Karl Keirstead raised his price target for Snowflake from $285 to $310 and maintained a buy rating. In his note, Keirstead mentioned that the data management market appears to be consolidating around two main players: Snowflake and the privately held Databricks.
"The tone from customers about their planned data software and Snowflake spend remains quite strong." - Karl Keirstead, UBS Analyst
Demand for Snowflake's services is being partly driven by the growing adoption of AI, which relies heavily on large-scale data processing and analytics. The company provides software that runs on various cloud platforms, earning revenue based on the computing and storage resources its customers consume.
Snowflake is ranked as the No. 3 stock in the enterprise software group and has a Composite Rating of 97. It has demonstrated a three-year EPS growth rate of 53% and a three-year sales growth rate of 34%.