The artificial intelligence (AI) market has already created monstrous growth values, but companies involved in this technological revolution still see growing opportunities. Here are two AI leaders that could be profitable investments over the next year and beyond.
1. C3.ai
C3.aiIt is (NYSE:IA) recent growth has been overshadowed by the exceptional performance of Palantir Technologiesbut investors shouldn’t overlook the C3. The company recently reported an accelerated revenue increase for the sixth consecutive quarter, which could pave the way for strong returns over the next year.
C3.ai continues to expand its sales in North America and Europe. During the last fiscal quarter, 71 deals were closed. New agreements have been concluded with several clients, including GSK (formerly GlaxoSmithKline), Dolce & Gabbana and the US Department of Defense.
It is also expanding its footprint in state and local governments, with 25 agreements in several states, including Texas, California and Florida.
All of these transactions are clear signs that C3.ai’s momentum is real. Customers see savings when using Generative AIand its customer service could solidify long-term relationships with these customers.
Despite this momentum, the stock fell for most of the year. One of the factors that hurt it is the low profitability of C3.ai. Management’s guidance calls for a full-year adjusted operating loss of between $95 million and $125 million, which is a lot compared to its revenue guidance of $370 million to $395 million.
However, the stock seems ready to rebound. The company’s net loss improves year over year, and it is reasonable to expect a profit as the company continues to grow. If investors credit the company for strong revenue growth, as they did Palantir more than a year ago, C3.ai stock price could skyrocket over the next year.
2.Nvidia
Nvidia (NASDAQ:NVDA) has been one of the best ways to invest in the AI boom in recent years. This is a pure response to the growing demand for AI-optimized computer hardware. While data centers are still in the early stages of upgrading components for AI workloads, Nvidia remains a solid buy.
Thomas Siebel, CEO of C3.ai, made a comment on his company’s latest earnings call that speaks to the opportunity for Nvidia. Siebel said it is very difficult to model current demand trends in the AI market. He said his company is seeing interest in enterprise AI from organizations it hadn’t anticipated, including law firms and medical diagnostics companies.
Nvidia is seeing similar trends. While cloud service providers generated nearly half of the $26 billion in revenue from their data centers last quarter, they are also seeing strong demand from AI startups that create data center applications. Generative AI for consumers, healthcare, education and advertising.
AI developers want to use Nvidia because it is the largest provider of graphics processing units (GPUs) and its chips are used to power all cloud services. 4.7 million developers use Nvidia’s CUDA computing platform, which provides access to software development kits and other tools designed to work with its GPUs.
The stock trades at an attractive forward price-to-earnings ratio of 34, based on the consensus estimate for next year’s earnings. That’s a good deal for a company expected to grow earnings by 36% on an annualized basis.
One factor holding back the stock’s valuation is that semiconductor companies can experience pauses in demand, which happened to Nvidia in 2018 and 2022. But investors who buy its shares with the intention of holding them for the long term should see market-beating returns.
The demand for AI technology in data centers will continue to grow over the next decade. This should benefit Nvidia, as it controls more than 70% of the AI chip market and has growing revenue opportunities in data center networking hardware and software.
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John Ballard has positions at Nvidia. The Motley Fool ranks and recommends Nvidia and Palantir Technologies. The Motley Fool recommends C3.ai and GSK. The Motley Fool has a disclosure policy.
2 Best Artificial Intelligence Stocks to Buy in October was originally published by The Motley Fool