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The S&P 500 (^GSPC 0.06%) experienced a rapid decline from a record high into correction territory within just 22 days this year, a stark contrast to the historical average of 75 days, according to data from UBS Wealth Management. This swift downturn underscores significant economic uncertainties stemming from President Trump’s dramatic shifts in U.S. trade policy.
Dan Ives of Wedbush has highlighted that cloud and software stocks, notably Alphabet (GOOGL -0.73%) (GOOG -0.81%) and CrowdStrike (CRWD -0.31%), may present safer investment options as the trade war unfolds. These companies primarily deliver services—rather than tangible products—making them less vulnerable to tariff impacts.
Investors must remain aware that no investment is entirely devoid of risk, especially in the stock market. Even shares of Alphabet and CrowdStrike could face significant declines if tariffs adversely affect economic growth. Nevertheless, I concur with Ives’s perspective: cloud and software enterprises generally possess a more favorable position in the current climate.
Here’s a closer look at Alphabet and CrowdStrike.
1. Alphabet
Alphabet’s Google is driven by two principal growth areas: digital advertising and cloud services. It holds the title of the largest ad tech firm globally, propelled by significant platforms like Google Search and YouTube. Despite a decline in shares across the open internet, its search advertising market share is predicted to experience modest growth through 2026, bolstered by advancements in generative artificial intelligence (AI), as reported by eMarketer.
In the realm of cloud services, Google ranks third, trailing behind Amazon and Microsoft. As of Q4 2024, it claimed 12% of the spending on infrastructure and platform services, a rise from 11% in Q4 2023, based on data from Synergy Research. While it may not surpass the leading companies, Google could continue to gain market share driven by increasing demand for AI solutions. Forrester Research recently acknowledged its prominence in AI foundation models and platforms.
In the first quarter, Alphabet delivered impressive financial results, exceeding expectations on both revenue and profit. Revenue increased by 12% to $90 billion, significantly fueled by robust sales growth in its cloud services. Operating margins improved by 2 percentage points, and GAAP earnings surged by 49% to $2.81 per diluted share. CEO Sundar Pichai attributed these strong outcomes to momentum in AI products across both advertising and cloud divisions.
Wall Street anticipates annual earnings growth of 7% through 2026, suggesting that the current valuation of 18 times earnings is reasonable. However, analysts may be underestimating the company’s potential, as ad tech and cloud spending are projected to grow at rates of 14% and 20%, respectively, through 2030. Furthermore, Alphabet has consistently outperformed consensus earnings estimates by an average of 14% over the past six quarters, according to LSEG.
Given these factors, investors might consider acquiring a modest stake in this AI-driven company at the current valuation.
2. CrowdStrike
CrowdStrike is focused on the cybersecurity sector, offering a platform that integrates 30 distinct software modules catering to various markets. As a leader in endpoint security, which protects devices like desktops and servers, it also excels in cloud security, identity protection, and security information and event management (SIEM).
Recently, several analysts have recognized CrowdStrike as a frontrunner in managed detection and response services—an offering that enables companies to enhance or outsource their security operations to skilled professionals. This demand is particularly timely, as the shortage of cybersecurity professionals currently stands at 4.8 million, leaving many organizations understaffed.
CrowdStrike’s position in endpoint security and other security domains provides it with a significant competitive edge, primarily due to its extensive data collection capabilities. CEO George Kurtz emphasized that CrowdStrike possesses the “richest data” in the industry, which enhances the efficacy of its AI models in thwarting attacks.
Though management indicated a conservative outlook with anticipated earnings declining by 14% for the fiscal year—attributed to “one-time upfront investments” in marketing and AI development—the company expects to see returns on these investments in the latter half of the year, positioning earnings for growth in the following year. Investors should keep this in mind with upcoming financial disclosures.
In light of the current situation, it may be prudent to utilize the price-to-sales (PS) ratio for evaluation, as opposed to the price-to-earnings (PE) ratio. Currently, CrowdStrike shares are priced at 27 times sales, compared to a three-year average of 21 times sales, representing a significant premium. Investors with a time horizon of three to five years may consider a small position now; however, waiting for a more favorable price may be wise.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon and CrowdStrike. The Motley Fool has positions in and recommends Alphabet, Amazon, CrowdStrike, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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