Artificial intelligence (AI) has proven to be an incredible catalyst for many companies over the last year or so, and many names benefiting from the increasing adoption of this technology have seen their share prices skyrocket.
For example, an investment of $10,000 Nvidia at the start of 2023 is now worth almost $58,000. This is not surprising since this company is a pioneer in the field of AI thanks to its graphics cards that allow users to train large language models (LLMs) and deploy AI applications. A similar investment in Super microcomputer The stock from early last year is now worth $110,000 as the company’s AI servers were in high demand.
The good thing is that the adoption of AI is still in its infancy. Buying solid AI stocks as part of a diversified portfolio could allow investors to benefit from this long-term growth trend.
Palantir Technologies (NYSE:PLTR) And ASML Holding (NASDAQ:ASML) These are two such stocks that investors can consider buying now to make the most of the proliferation of AI.
1. Palantir Technologies
Palantir Technologies is proving to be a solid solution to the booming demand for AI software. The company’s artificial intelligence platform (AIP) is enjoying strong adoption, and management said it is helping the company “significantly shorten sales cycles and accelerate the speed of new customer acquisition.” That’s not surprising, as AIP gives companies the opportunity to integrate large language models into their operations through bootcamps that Palantir hosts to help customers understand the use cases of AI and how this technology can be used to improve their businesses can be.
AIP has led to a sharp increase in the number of commercial contracts the company has signed. Management pointed out in the February earnings release: “Demand for AIP is above average, with bootcamps as the delivery mechanism for AIP, and we see AIP driving the expanding addressable market.”
Palantir’s strength in the AI software market is one of the main reasons analysts expect the company’s revenue to rise 22% to $2.71 billion in 2024 – an improvement over the growth reported for 2023 of 17%. More importantly, Palantir’s AI business is in early stages of growth, with the AI software platform market expected to grow 31% annually through 2030 and reach $279 billion in revenue by the end of this decade. will generate dollars.
Palantir’s growth rate should accelerate if the company manages to maintain its impressive business momentum. For example, the number of deals worth more than $1 million closed in the fourth quarter of 2023 nearly doubled year-over-year to 103.
The company’s remaining performance obligations (RPO), the value of future contracts that Palantir expects to fulfill in the future, also increased 28% year-over-year to $1.24 billion. With RPO growth outpacing revenue, the company is well-positioned with a healthy revenue pipeline.
And now the company has partnered with oracle to distribute its AI software platform across a larger network, which should help it attract more customers. These promising developments explain why analysts are forecasting 85% annual earnings growth for the company over the next five years.
This improved earnings power should deliver even more profits to Palantir shareholders, making the company the top choice for investors looking to add an AI growth stock to their portfolio.
2. ASML Holding
Semiconductors play a crucial role in the AI revolution, as evidenced by the huge demand for Nvidia chips. However, the production of these chips would not have been possible without ASML Holding machines.
For example, Nvidia’s flagship H100 processor, which is selling like hotcakes, is made with a custom 5-nanometer (nm) node Taiwan semiconductor manufacturing, popularly known as TSMC. To produce chips based on this process node, TSMC uses ASML’s extreme ultraviolet lithography (EUV) systems.
The good news for ASML is that the demand for advanced process nodes is increasing thanks to AI. Nvidia, for example, is rapidly increasing production of its AI chips to meet customer demand. To achieve this, foundries like TSMC are reportedly increasing their capital investments. In its most recent earnings call, TSMC management indicated that “between 70% and 80% of the capital budget will be allocated to the advanced process technologies” of its total 2024 capital budget of $28 billion to $32 billion.
In addition, with companies like Nvidia and Apple If companies want to move to more advanced chips manufactured using 3nm and 2nm process nodes, capital expenditure on purchasing EUV machines should ideally increase. For this reason, orders for ASML’s machines skyrocketed significantly in the fourth quarter of 2023.
The Dutch company’s net bookings rose to 9.2 billion euros in the fourth quarter of 2023 from 2.6 billion euros in the previous quarter. The order backlog amounted to a solid 39 billion euros. ASML’s order book is expected to grow as the AI chip market is expected to grow 38% annually through 2032, further driving demand for advanced chip manufacturing equipment.
TSMC, for example, will build a third factory in the US to produce 2nm chips, which also means that the company will place orders for ASML’s EUV lithography equipment, as the latter has a monopoly in this market. Overall, the secular growth of the AI chip market and ASML’s control over EUV lithography are reasons why this company appears poised for robust growth in the future.
It’s worth noting that the company’s shares have increased nearly tenfold over the past decade, and the lucrative semiconductor opportunities that lie ahead signal that ASML stock could prove to be a big winner in the long run.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Apple, Nvidia, Oracle, Palantir Technologies and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
2 Millionaire-Maker Artificial Intelligence (AI) Stocks was originally published by The Motley Fool