The artificial intelligence (AI) market has already created some monster growth stocks, but companies involved in enabling this technological revolution still see growing opportunities. Here are two AI leaders who could be profitable investments in the coming year and beyond.
1. C3.ai
C3.ai‘S (NYSE:AI) The recent growth has been overshadowed by the stellar performance of Palantir Technologiesbut investors should not overlook C3. The company recently reported accelerating revenue growth for the sixth consecutive quarter, which could set the stage for excellent returns in the year ahead.
C3.ai continues to expand sales in North America and Europe. It closed 71 deals in the last fiscal quarter. New deals were concluded with several customers, including GSK (formerly GlaxoSmithKline), Dolce & Gabbana and the US Department of Defense.
It is also expanding its footprint among state and local governments, with 25 agreements in several states, including Texas, California and Florida.
All of these deals are clear signs that C3.ai’s momentum is real. Customers see cost savings by using generative AIand its customer service could strengthen long-term relationships with these customers.
Despite the momentum, the stock has fallen for most of the year. One factor hurting the company is C3.ai’s weak profitability. Management’s guidance calls for an adjusted loss from operations for the full year between $95 million and $125 million, which is high compared to revenue expectations of $370 million to $395 million.
Still, the stock seems poised to recover. The company’s net loss is improving year over year, and it’s reasonable to expect profits over time as the company continues to grow. If investors give the company credit for strong revenue growth, as they did for Palantir over a year ago, The stock price of C3.ai could be even higher in the coming year.
2. Nvidia
Nvidia (NASDAQ: NVDA) has been one of the best ways to invest in the AI boom in recent years. It is a pure play on the growing demand for AI-optimized computer hardware. Since data centers are still in the early stages of upgrading components for AI workloads, Nvidia is still a solid buy.
Thomas Siebel, the 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 the demand trends currently happening in the AI market. He said his company is seeing interest in enterprise AI from organizations it didn’t expect, including law firms and medical diagnostic companies.
Nvidia sees similar trends. While cloud service providers generated nearly half of the company’s $26 billion in data center revenue last quarter, the company is also experiencing strong demand from AI startups building generative AI applications for consumer, healthcare, education and advertising.
AI developers want to use Nvidia because it is the largest supplier of graphics processing units (GPUs) and its chips are used to power every cloud service. There are 4.7 million developers using Nvidia’s CUDA computing platform, which provides access to software development kits and other tools designed to work with the GPUs.
The stock trades at an attractive price-to-earnings ratio of 34 based on the consensus forecast for next year. That’s a bargain for a company that’s expected to grow earnings 36% year over year.
One factor keeping the stock’s valuation low is that semiconductor companies may experience demand lulls, which is what happened to Nvidia in 2018 and 2022. But investors who buy their stocks 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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Johannes Ballard has positions at Nvidia. The Motley Fool holds and recommends positions in Nvidia and Palantir Technologies. The Motley Fool recommends C3.ai and GSK. The Motley Fool has one disclosure policy.
2 Best Artificial Intelligence Stocks to Buy in October was originally published by The Motley Fool
