Companies are rapidly investing in artificial intelligence (AI) to improve productivity and create new applications for both consumer and business use. This will provide a huge 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 investments.
1. Palantir Technologies
Organizations from the military to Fortune 500 companies use software from Palantir Technologies (NYSE:PLTR) for data analysis powered by AI. 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 is delivering solid financial results. Quarterly revenue of $634 million has tripled in the past five years. The company posted 21% year-over-year revenue growth in the first quarter, driven by a 69% year-over-year increase in customer numbers. The accelerated growth in customer numbers shows an opportunity to achieve greater growth as these customers expand their relationships with Palantir.
While the company’s U.S. government revenue grew just 12% year over year in the first quarter, business is booming for U.S. companies. Commercial revenue in the US grew by 40% year-on-year last quarter. In 2023, Dresner Advisory Services selected Palantir as a top vendor in AI, data science and machine learning – a recognition that is well reflected in the company’s financials.
One of the customers is a home improvement retailer Lowe’s, which uses Palantir’s software platform to improve customer service. Another notable customer is Sagittarius Aviation, which uses it for dynamic flight routing and predictive maintenance. These are just a few examples of how companies are using Palantir.
An important quality an investor should look for in any software company is whether it successfully turns growing revenues into profits. Palantir checks this box, as management expects adjusted operating income to be between $868 million and $880 million this year on revenue of more than $2.6 billion. Profitable growth will deliver meaningful returns to investors, and Palantir is clearly showing that it can achieve that.
2.Tesla
It’s been a tough year for the electric vehicle (EV) market, with sales under pressure from rising interest rates and competition between leading EV manufacturers. Tesla (NASDAQ: TSLA) reported a decline in sales in the first quarter, which has weighed on the stock’s year-to-date performance. But while Tesla is primarily known as an EV brand and still has a lot of advantage in that market, it is its investments in AI and software that differentiate the company in the automotive industry.
CEO Elon Musk said during a recent earnings call that Tesla was in talks with a major automaker about possible licensing of its full self-driving (FSD) software. Considering that an estimated 29% to 54% of new vehicles could be electric by 2050, Tesla could see a significant opportunity in licensing its self-driving software, according to the Institute for Energy Research.
Tesla is already one of the most profitable automakers in the world, generating $13 billion in net profit last year. One of the things it can do with those profits is buy Nvidia‘s precious chips for AI training. It is making significant progress in training its AI models. Recent video reviews show that Tesla’s latest version of FSD can handle typical traffic and road problems as well as a human driver.
The improvement with Tesla’s FSD prepares the company for the highly anticipated unveiling of the Cybercab in August. According to MarketsandMarkets, the robotaxi market is expected to grow rapidly over the next decade, from $400 million in 2023 to over $45 billion by 2030, and Tesla could one day be the largest supplier.
All told, Tesla’s investments in AI, including its work on humanoid robots, could lead to more revenue opportunities over time that aren’t baked into the stock’s valuation.
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John Ballard has positions in Nvidia and Tesla. The Motley Fool holds and recommends positions in 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
