Final 12 months, billionaire investor Warren Buffett famously in contrast synthetic intelligence (AI) to nuclear weapons. Like letting a genie out of a bottle, he fears the know-how might have disastrous and irreversible results.

When the primary nuclear weapon was examined in 1945, he was 15 years outdated and had already been investing for 4 years. No matter that, his monitor file means It’s secure to say his phrases shouldn’t be taken calmly.

However prefer it or not, AI isn’t going away. By now, it’s so deeply embedded in all elements of society that any try and ‘rebottle the genie’ would doubtless fail. One factor I’ve realized in my 40-odd years is that there’s no level standing in the way in which of progress.

So quite than worry an imminent AI meltdown, I’m doing what any good investor would do and looking for alternatives.

Hidden worth

AI shares are a plentiful as of late, so it’s necessary to separate the wheat from the chaff. The trick is to keep away from worth traps whereas figuring out true innovators.

Some could assume the apparent choices are semiconductor giants — Nvidia, Broadcom, and AMD. In some methods, sure. In any case, they’re those “promoting shovels in a gold rush“, that’s, offering the instruments to energy AI fashions. 

However whereas that could be true, I feel there are extra profitable alternatives elsewhere.

If Buffett’s proper and AI is extra nuclear than gold, we’ll want safety not shovels. That’s the place the world’s third-largest cybersecurity agency is available in.

Preventing fireplace with fireplace

Even the brightest minds in AI have admitted that they “don’t actually know the way it works“. 

That’s by design. It wouldn’t be very clever if it was simply following directions. As hackers more and more undertake it to streamline their assaults, solely AI-enhanced safety will probably be quick sufficient to reply successfully.

Fortinet‘s (NASDAQ: FTNT) one of many corporations on the forefront of creating AI-enhanced cybersecurity. Its FortiAI generative AI assistant is aimed toward automating duties to assist analysts quickly reply to threats and develop pre-emptive defence methods. In response to the corporate, it could “adapt and evolve, continuously learning from new data and improving its ability to identify and counter emerging threats”.

But when 2024 has taught us something, it’s that even the world’s hardest safety giants are weak. In September final 12 months, Fortinet revealed it had suffered an information breach on a third-party cloud drive. The hacker reportedly demanded a ransom and launched 440GB of confidential knowledge when the corporate refused.

On this occasion, the breach was small however a much bigger one might trigger quite a lot of reputational – and monetary – injury. If you’re accountable for the world’s knowledge, a slight error will be devastating. Simply ask Crowdstrike.

Strong efficiency

With a revenue margin of 36% and return on fairness (ROE) of 168.5%, its latest efficiency speaks for itself. Within the newest Q3 2024 outcomes, income and income exceeded analysts’ expectations by 1.9% and 58% respectively.

Based mostly on future money move estimates, the $96 shares are buying and selling at 30% beneath truthful worth. At present, at round 48 instances earnings, that price initially appears a bit overvalued. However that ratio’s solely barely above the business common for US software program corporations.

So whereas Apple, Meta and Amazon dominate the headlines, I feel Fortinet might emerge as a darkish horse within the race for the AI crown.