This Growth Stock Is a Machine Learning Powerhouse – The Motley Fool

  • Lauren
  • March 6, 2022
  • Comments Off on This Growth Stock Is a Machine Learning Powerhouse – The Motley Fool

As technology continues to rapidly evolve, demand is soaring for providers of advanced services like machine learning (ML). It’s a subfield of artificial intelligence that focuses on using large amounts of data to make predictions and improve productivity in a variety of business processes. 
Estimates suggest the machine learning industry was worth $15.5 billion in 2021, and it’s set to soar almost tenfold to $152 billion by the year 2028. That growth will be driven by organizations finding new and exciting ways to apply ML, whether they’re in e-commerce, manufacturing, or anything in between.
Splunk ( SPLK 5.93% ) is a pioneer of ML technology. It just reported its full-year fiscal 2022 earnings results, and it beat even its own forecasts. Here’s why the company is perfectly positioned to grab an increasing slice of this booming industry.

Diverse use cases
Splunk offers a variety of solutions across security, information technology, and development operations — with machine learning woven through them all. Each solution has a subset of use cases, but the diversity of Splunk’s capabilities is more observable through its customer base, which now consists of 92 of the Fortune 100 organizations.
Global car maker Honda Motor has deployed Splunk in its Alabama plant, which is the company’s largest light-truck manufacturing facility in the world. Splunk’s predictive insights are adding value by constantly analyzing machine data to catch critical failures, reducing the plant’s time-to-repair metric by 70%. Splunk is even monitoring air quality inside the facility, to ensure emissions from paint-related production activities don’t exceed regulatory limits, preventing costly shutdowns.
Then there’s Domino’s Pizza, which couldn’t be a more different business than Honda. Domino’s now leverages over 15 different sales channels, from a smart TV application, to mobile, to smart speakers, and it uses Splunk to monitor them all. Splunk offers real-time insights into each transaction so Domino’s can make improvements on the fly, and like Honda, the pizza maker is able to proactively minimize the effects of incidents and downtime.
But there’s perhaps no higher-stakes deployment of Splunk’s technology than in Formula 1 racing, where the McLaren team uses machine learning and predictive analytics to make real-time changes to its cars in a live setting.

Image source: Getty Images.

A transformative fiscal 2022
Splunk is in the middle of a major transition to the cloud, which allows the company to deliver its solutions more effectively. By the same token, it allows customers to operate Splunk’s applications anywhere, anytime, which is especially important when deploying Splunk’s security solutions.
Cloud revenue now represents 35% of total revenue, and it’s the driving force behind Splunk’s growth at the moment.

Metric

Fiscal 2021

Fiscal 2022

Change

Cloud revenue

$554 million

$943 million

70%

Total revenue

$2.22 billion

$2.67 billion

19%

Data source: Splunk. CAGR = Compound Annual Growth Rate.
The company’s total fiscal 2022 revenue of $2.67 billion beat the upper end of its most recent forecast of $2.56 billion, and it reported $128 million in operating cash flow, which was a 28% boost over its $100 million estimate.
Splunk is attracting more large organizations. It reported 675 customers in its top category, who spend $1 million or more annually. It represented 32% year-over-year growth in fiscal 2022, but that includes 317 cloud customers, and that number was up 70% for the year. 
Splunk is a bet on the future
The case for owning Splunk stock isn’t built on a single good year. As mentioned earlier, the machine learning industry could be worth $152 billion annually by 2028, and that represents a compound annual growth rate of 38.6% between now and then. 
But Splunk’s cloud-based revenue grew at almost twice that rate in fiscal 2022, suggesting it’s set up to increase its market share in the future, as cloud becomes the dominant share of its business. And the company is forecasting up to $2 billion in cloud annual recurring revenue in fiscal 2023, which would be a 49% jump over the $1.34 billion in fiscal 2022. 
A new CEO also just joined the fold, bringing a plethora of experience in software-as-a-service (SaaS) businesses across the cybersecurity industry, and this addition should help drive Splunk’s recurring revenue business model forward. 
As more companies demand the power of machine learning, Splunk might be the pure-play stock to bet on over the long term. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Source: https://www.fool.com/investing/2022/03/06/this-growth-stock-is-a-machine-learning-powerhouse/