One of the biggest themes that helped drive the market last year was artificial intelligence (AI). Technology, which in the past was relegated to science fiction, has suddenly become mainstream. Companies, meanwhile, have been racing to become AI leaders, seeing that it has a generational opportunity.
Let’s look at three stocks that benefit greatly from AI.
Known as one of the most important sellers of the American government, Palantir Technologies(NASDAQ: PLTR) and its data collection and analytics solutions have been used for critical tasks such as the fight against terrorism and the tracking of COVID-19 cases. However, the company has now been able to incorporate AI into its solutions to begin helping commercial customers meet their mission-critical needs.
While many large technology companies have focused on developing the best AI models, Palantir instead decided to focus on the application and workflow layers of AI software to improve logic and functionality. This helps AI to better perform actions in real-life applications. Its AI platform is designed to be the operational layer of an organization, where digital assets, such as data sets and models, are then connected to their real-world counterparts, such as products or orders from the customers.
The company’s solutions have seen strong demand from commercial customers, with its US commercial revenue increasing 54% last quarter to $179 million, while its number of US commercial customers Uniti grew by 77%. Meanwhile, the US government, its biggest customer, is also starting to embrace AI solutions.
So far, much of Palantir’s early success in AI has been with proof-of-concept prototype work. It has done a great job of acquiring commercial customers through its Artificial Intelligence Platform (AIP) bootcamps, where it shows customers how its technology can be applied to potential use cases while providing onboarding and the training. The big opportunity moving forward is moving these customers from proof of concept to production. This should help accelerate the company’s overall revenue growth, which was 30% last quarter.
The only knock on Palantir is the valuation, as the stock currently trades at 42 times forward price to sell ratio.
Image source: Getty Images.
Another company that has greatly benefited from AI is AppLovin(NASDAQ: APP). The company owns a portfolio of apps, but its primary business is an adtech solution that helps gaming apps better attract and monetize customers.
Since launching its AI-powered Axon 2 solution in early 2023, the company’s revenue has grown as gaming applications have embraced its technology. Existing customers started spending more and it also attracted a lot of new customers. Axon 2 uses predictive machine learning to target ads to users most likely to download these apps.
The success of Axon 2 can be seen in AppLovin’s software platform revenue, which increased 66% to $835 million last quarter. Even more impressive is that this revenue growth was above the 65% revenue growth the software platform saw a year ago in Q3 2023.
The company’s solution seems to drive business away Unity Softwarethat the comparative “growth solutions” segment saw a 5% decrease in revenue last quarter. The success of Axon 2 also leads to a big improvement in the company’s gross margin, which grew from 69.3% a year ago to 77.5%. This, in turn, leads to even better profitability growth.
AppLovin said it expects revenue growth with gaming clients to settle in the 20% to 30% range over the long term, but its biggest opportunity is moving its adtech platform beyond gaming. The company piloted Axon 2 with e-commerce companies with initial success, and expects this new vertical to become a significant contributor in 2025.
The stock is currently trading at a forward price-to-earnings (P/E) ratio of 39.5 based on 2025 analyst estimates with a price-to-earnings-to-growth (PEG) ratio of 0.63. A PEG ratio below 1 is considered undervalued and growth stocks often have multiples above 1.
Semiconductor manufacturer Broadcom(NASDAQ: AVGO) has started making waves in the AI chip market, where the company works with customers to design custom AI chips for things like AI training and inference. Alphabet was its first large customer in this arena with its tensor processing units (TPU), which it credited as a key differentiator that helps reduce inference processing times and lower costs.
Broadcom’s custom chips are designed for very specific tasks and as such perform better at those tasks than graphics processing units (GPUs), which offer more flexibility. For example, Alphabet’s TPUs are optimized for tensor operations in Google Cloud’s TensorFlow framework. Tensor operations are a form of high-level mathematics used in AI deep learning.
The company has seen strong growth from its custom AI chips, which topped $12 billion in revenue in fiscal 2024. Meanwhile, the company has been steadily adding new customers.
Last quarter, the company said its three biggest custom AI chip customers — believed to be Alphabet, Meta Platformsand ByteDance—were each planning to deploy 1 million AI chip clusters by 2027, which would equate to an addressable market of between $60 billion and $90 billion in fiscal 2027 alone. Meanwhile, he said that two additional customers – believed to be OpenAI and Apple – They advanced in their chip development, which could increase this number even more.
If the custom AI chip market continues to take off, Broadcom looks set to be the biggest winner. The stock is currently trading at a forward P/E of 36.5 based on analyst estimates for this fiscal year (until November 2025), which is not expensive if it can take advantage of its opportunity to AI chip.
Before you buy shares in Palantir Technologies, consider this:
U Motley Fool stock tips the analyst team has only identified what they believe they are 10 best stocks for investors to buy now… and Palantir Technologies was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, would have $885,388!*
Stock exchange provides investors with an easy-to-follow plan for success, including a guide on building a portfolio, regular updates from analysts, and two new picks every month. UStock exchangeservice has more than quadrupled the return of the S&P 500 since 2002*.
Randi Zuckerberg, former director of market development and Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of the board of directors of The Motley Fool. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has position in Alphabet. The Motley Fool has positions in and recommends Alphabet, AppLovin, Apple, Meta Platforms, Palantir Technologies and Unity Software. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
