The rapid growth of the artificial intelligence (AI) market has sent many stocks soaring to record highs in recent years. Therefore shares of Nvidiachipmaking in this booming market, has increased by 2,760% over the past five years.
Some investors may be wary of chasing these game-changing gains, but many overlooked AI stocks could still go parabolic in the future. Let’s look at three stocks that fit this description: Innodata(NASDAQ: INOD), MicroStrategy(NASDAQ:MSTR)And Lumen technologies(NYSE: LUMN).
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
Image source: Getty Images.
Innodata was once considered a slow-growth IT services and business software company. However, the stock rose from around $1 at the end of 2019 to around $32 today. That huge rally was the result of an AI-powered acceleration in the top line.
Turnover increased by 10% in 2023. But in the first nine months of 2024, revenue rose 83% year over year to $111 million, while adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 266% to $20 million. It also became profitable under generally accepted accounting principles (GAAP). That explosive growth stemmed from the rollout of generative AI tools for five of the ‘Magnificent Seven’ companies.
For the full year, Innodata expects revenue to increase between 88% and 92% as more companies adopt generative AI services. From 2024 to 2026, analysts expect revenue to have a compound annual growth rate (CAGR) of 25%, as adjusted EBITDA experiences a CAGR of 29%.
Those are great growth numbers for a stock that trades at four times next year’s revenue and 37 times adjusted EBITDA. Innodata has already had a great run over the past five years, but it could soar even further if it can attract more big tech companies with its data processing and AI capabilities.
MicroStrategy was once dismissed as a slow-growth enterprise software company, but then started hoarding Bitcoin in 2020. At the end of the last quarter, it owned 252,220 digital tokens with a current market value of $19.26 billion. That’s almost a third of MicroStrategy’s enterprise value of $59.1 billion.
The bulls believe MicroStrategy’s hoarding strategy will pay off as the price of the top cryptocurrency skyrockets in the coming years. In theory, the rising value of its Bitcoin holdings could offset slower growth in its enterprise software business.
However, MicroStrategy is also a generative AI company. Last October, it introduced MicroStrategy AI, a platform that allows companies to integrate generative AI functions into their existing data applications. It expects these new features, along with the transformation of its on-site applications to cloud-based services, to stabilize the growth of its core software business as it accumulates more crypto.
Analysts expect MicroStrategy’s revenue to have just a 1% CAGR between 2023 and 2026 as it remains unprofitable on a GAAP basis. But the value of its Bitcoin holdings could continue to grow — and its generative AI company could experience a sudden growth spurt, just like Innodata, as it wins more customers.
Lumen, the telecom company formerly known as CenturyLink, has suffered five consecutive years of revenue declines. It has also been unprofitable for the past two years and suspended its dividend in 2022. That’s why the stock price fell below $1 in June.
Unlike many of its telecom peers, Lumen did not expand into the wireless market to reduce its dependence on wireline connections. Instead, it doubled down on its slow-growing mobile market and bundled more cloud, security and collaboration services with its business wireless plans.
It also expanded into the faster growing fiber optic market. Lumen originally expected to generate slow but steady growth as economies of scale materialized, but declining mobile revenues consistently offset rising fiber revenues. As a result, rising costs overwhelmed falling revenues and losses mounted.
But in recent months, Lumen has closed a series of AI connectivity deals worth $5 billion, including one to power its data center infrastructure Microsoft‘s Azure cloud platform to handle more generative AI applications.
Those new deals lit a fire under Lumen’s stock, bringing it back to around $9. But even after that rally, its $25.5 billion enterprise value is less than twice its projected 2024 revenue. Analysts expect that sales will decline again in 2024 and 2025, but the new AI contracts can help the company meet those low expectations. If that happens, Lumen’s stock could go parabolic as it attracts more value-seeking investors.
Consider the following before purchasing shares in Innodata:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Innodata wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $904,692!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. TheStock Advisoris on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns November 4, 2024
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
3 Artificial Intelligence (AI) Stocks That Could Go Parabolic was originally published by The Motley Fool
