Leading companies capitalizing on the growing demand for artificial intelligence (AI) services have been one of the key catalysts driving these developments S&P500 And Nasdaq Composite to new heights this year. Investors who put their money in the right stocks could make a lot of money in this fast-growing new sector over the next decade.
Here are two promising stocks that could deliver shareholder returns.
1. C3.ai
C3.ai (NYSE:AI) is a leading AI business software developer. Some of the largest companies in the world use C3.ai, including the federal government. The US Air Force uses C3.ai to predict in-service failure points and identify spare parts needed for repairs. Shell uses C3’s advanced software to monitor and maintain more than 10,000 devices across its energy assets. While the stock hasn’t kept pace with the broader market this year, these relationships with large organizations point to a huge opportunity on the horizon.
The company’s partnerships with leading cloud providers such as Amazon Web services and Alphabet‘s Google Cloud works in its favor. These partnerships are a key driver of C3.ai’s growth and help reduce friction in acquiring new customers.
C3.ai recently switched to a consumption-based pricing model, where customers pay for the resources they use, which is the standard by which cloud service providers price their products. While this reduced costs for customers, it caused revenue growth to slow over a year ago, but now growth is starting to pick up again. Management guidance calls for full-year revenue growth between 19% and 27%, which is a catalyst for the stock.
C3 continues to report strong interest from many organizations. In its most recent earnings report, the company said it received nearly 50,000 inquiries from companies about its generative AI applications. This shows that the move to a consumption-based model has made the offering more attractive to new customers by reducing costs.
The recent acceleration in growth has brought the price-to-sales ratio down to a more reasonable 12 from 16 a year ago. Assuming the company delivers on its revenue expectations, the lower valuation could attract more investors and lift the stock to new highs down the road. this year.
2. Metaplatforms
A stronger digital advertising market has led to accelerated revenue growth Metaplatforms (NASDAQ: META) over the past year, but the stock is still trading at a reasonable valuation that could warrant more new highs. Meta is making progress in integrating AI services on its social media platforms, contributing to revenue growth.
Meta AI has been rolled out on Instagram, Facebook, WhatsApp and Messenger and is already contributing to greater user engagement. The bonus is higher ad revenue, which is how Meta Platforms monetizes the billions of users on its platforms.
Meta’s revenue grew 27% year-over-year in the first quarter, with AI-driven recommendation systems and advertising tools contributing to the company’s revenue momentum.
Investors are concerned about increasing competition from other social media apps, such as TikTok. However, Meta’s AI infrastructure is becoming a competitive advantage. More than half of the content recommended on Instagram is AI-driven, with short videos on Instagram’s Reels being a key driver of engagement.
Meta has enough money to continue investing heavily in AI. The company produced $49 billion in free cash flow in the last twelve months and its growth prospects look solid. Analysts expect earnings per share to grow 18% annually over the next few years, which should translate into similar returns for shareholders given the stock is priced at a market average price-to-earnings ratio of 25.
Should you invest $1,000 in C3.ai now?
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. John Ballard has positions in Meta Platforms. The Motley Fool holds positions in and recommends Alphabet, Amazon and Meta Platforms. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
2 Top Artificial Intelligence (AI) Stocks Poised for a Bull Run was originally published by The Motley Fool
