Businesses are rapidly investing in artificial intelligence (AI) to improve productivity and create new applications for individuals and businesses. This will be a monstrous growth opportunity over the next decade, so investors who identify the companies best positioned to capitalize could reap big rewards.
Here are two companies working on AI that could reward long-term investment.
1. Palantir Technologies
Organizations from the military to Fortune 500 companies use software Palantir Technologies (NYSE:PLTR) for AI-powered data analysis. The stock has been volatile in recent years, but is up about 230% since its 2022 low.
As the stock’s recent returns suggest, Palantir’s business generates strong financial results. Its quarterly revenue of $634 million has tripled over the past five years. The company reported 21% year-over-year revenue growth in the first quarter, driven by a 69% year-over-year increase in customers. The faster growth in customers shows an opportunity to generate more growth as these customers expand their relationships with Palantir.
While the company’s U.S. government revenue grew only 12% year-over-year in the first quarter, U.S. corporate business is booming. U.S. commercial revenue grew 40% year-over-year last quarter. In 2023, Dresner Advisory Services selected Palantir as a leading provider in AI, data science and machine learning – a recognition that is well reflected in the company’s financials.
One of his clients is a home improvement retailer Lowes, which uses Palantir’s software platform to improve customer service. Another notable client is Archer Aviation, which uses it for dynamic flight routing and predictive maintenance. These are just a few examples of how businesses are using Palantir.
An important quality that an investor should look for in any software company is whether it is successful in converting its growing revenues into profits. Palantir checks that box, as management projects adjusted operating income of between $868 million and $880 million this year on more than $2.6 billion in revenue. Profitable growth is what will generate meaningful returns for investors, and Palantir is clearly showing that it can achieve this.
2.Tesla
It’s been a tough year for the electric vehicle (EV) market, with sales pressured by rising interest rates and competition among major EV manufacturers. You’re here (NASDAQ:TSLA) reported a decline in first-quarter revenue, which weighed on the stock’s year-to-date performance. But even though Tesla is best known as an electric vehicle brand and still has many advantages in that market, its investments in AI and software are where the company stands out in the auto industry.
CEO Elon Musk mentioned during a recent earnings conference call that Tesla was in conversations with a major automaker about potentially licensing its fully autonomous driving (FSD) software. Considering that approximately 29 to 54 percent of new vehicles could be electric by 2050, according to the Energy Research Institute, Tesla could be looking at a sizable opportunity in licensing its self-driving software.
Tesla is already one of the world’s most profitable automakers, generating $13 billion in net profit over the last year. One of the things she can do with these profits is buy NvidiaExpensive chips for AI training. It is making significant progress in training its AI models. Recent video reviews show that the latest version of Tesla’s FSD handles typical traffic and road challenges as well as a human driver.
Tesla’s FSD improvement prepares the company for the highly anticipated Cybercab unveiling in August. The robotaxi market is expected to grow rapidly over the next decade, from $400 million in 2023 to more than $45 billion by 2030, according to MarketsandMarkets, and Tesla could one day become the leading supplier.
That said, Tesla’s investments in AI, including work on humanoid robots, could generate more revenue opportunities over time that aren’t priced into the stock’s valuation.
Should you invest $1,000 in Palantir Technologies right now?
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John Ballard holds positions at Nvidia and Tesla. The Motley Fool ranks and recommends Nvidia, Palantir Technologies and Tesla. The Motley Fool recommends Lowe’s Companies. The Motley Fool has a disclosure policy.
2 Artificial Intelligence Stocks to Buy and Hold for Big Long-Term Potential was originally published by The Motley Fool
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