One among the largest themes that helped drive the market last yr was artificial intelligence (AI). The technology, which previously was relegated to science fiction, has suddenly turn into mainstream. Firms, meanwhile, have been racing to turn into AI leaders, viewing it has a generational opportunity.
Let’s take a look at three stocks which are greatly benefiting from AI.
Referred to as one among the U.S. government’s most vital vendors, Palantir Technologies(NASDAQ: PLTR) and its data gathering and analytics solutions have been used for such critical tasks as fighting terrorism and tracking COVID-19 cases. Nevertheless, the corporate has now been in a position to incorporate AI into its solutions to start helping industrial customers address their very own mission-critical needs.
While many large tech corporations have focused on developing the most effective AI models, Palantir as a substitute has decided to give attention to the applications and workflow layers of AI software to enhance logic and functionality. This helps AI higher perform actions in real-life applications. Its AI platform is designed to be the operational layer of a company, where digital assets, comparable to data sets and models, are then connected to their real-world counterparts, comparable to products or customer orders.
The corporate’s solutions have been seeing huge demand from industrial customers, with its U.S. industrial revenue rising 54% last quarter to $179 million, while its U.S. industrial customer count soared 77%. Meanwhile, the U.S. government, its largest customer, can be beginning 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 an excellent job of acquiring industrial customers through its Artificial Intelligence Platform (AIP) boot camps, where it demonstrates to customers how its technology could be applied to potential use cases while providing onboarding and training. The large opportunity moving forward is moving these customers from proof of concept to production. This could help speed up the corporate’s overall revenue growth, which was 30% last quarter.
The one knock on Palantir is valuation, because the stock currently trades at 42 times forward price-to-sales ratio.
Image source: Getty Images.
One other company that has greatly benefited from AI is AppLovin(NASDAQ: APP). The corporate owns a portfolio of apps, but its primary business is an adtech solution that helps gaming apps attract and higher monetize customers.
For the reason that launch of its AI-powered Axon 2 solution in early 2023, the corporate’s revenue has soared as gaming apps have embraced its technology. Existing customers have begun to spend more and it also attracted a variety of latest customers. Axon 2 uses predictive machine learning to focus on ads toward users almost definitely to download those apps.
The success of Axon 2 could be seen in AppLovin’s software platform revenue, which surged 66% to $835 million last quarter. Much more impressive is that this revenue growth was on top of the 65% software platform revenue growth it saw a yr ago in Q3 2023.
The corporate’s solution appears to be taking away business from Unity Software, whose comparative “grow solutions” segment saw a 5% decline in revenue last quarter. Axon 2’s success can be resulting in an enormous improvement in the corporate’s gross margin as well, which rose from 69.3% a yr ago to 77.5%. This, in turn, is resulting in even higher profitability growth.
AppLovin has said it expects revenue growth with gaming customers to settle into the 20%-to-30% range longer-term, but its larger opportunity is moving its adtech platform beyond gaming. The corporate has been piloting Axon 2 with e-commerce corporations with early success, and it expects this latest vertical to turn into a meaningful contributor in 2025.
The stock currently trades at forward price-to-earnings (P/E) ratio of 39.5 based on 2025 analyst estimates with a price/earnings-to-growth (PEG) ratio of 0.63. A PEG ratio below 1 is taken into account undervalued and growth stocks will often have multiples well above 1.
Semiconductor maker Broadcom(NASDAQ: AVGO) has begun making waves in AI chip market, where the corporate is working with customers to design custom AI chips for things like AI training and inference. Alphabet was its first big customer on this arena with its tensor processing units (TPUs), which it has credited as being 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 higher at those tasks than graphics processing units (GPUs), which supply more flexibility. For instance, Alphabet’s TPUs are optimized for tensor operations inside Google’s Cloud’s TensorFlow framework. Tensor operations are a type of high-level mathematics utilized in AI deep learning.
The corporate has been seeing strong growth from its custom AI chips, which topped $12 billion in revenue in fiscal 2024. Meanwhile, the corporate has been steadily adding latest customers.
Last quarter, the corporate said its three large custom AI chip customers — believed to be Alphabet, Meta Platforms, and ByteDance — were each planning to deploy 1 million AI chip clusters by 2027, which might equate to an addressable market of between $60 billion to $90 billion in fiscal 2027 alone. Meanwhile, it said two additional customers — believed to be OpenAI and Apple — were moving forward of their chip development, which could increase this number much more.
If the custom AI chip market continues to take off, Broadcom looks poised to be the largest winner. The stock currently trades at forward P/E of 36.5 based on this fiscal yr’s analyst estimates (ending November 2025), which is not expensive if it might benefit from its AI chip opportunity.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Idiot’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Idiot has positions in and recommends Alphabet, AppLovin, Apple, Meta Platforms, Palantir Technologies, and Unity Software. The Motley Idiot recommends Broadcom. The Motley Idiot has a disclosure policy.