Leading companies benefiting from the booming demand for artificial intelligence (AI) services have been one of the main catalysts sending the S&P 500 and Nasdaq Composite to new highs this year. Investors who put their money in the right stocks could make a lot of money over the next decade in this burgeoning new industry.
Here are two promising stocks that could deliver wealth-building returns for shareholders.
1. C3.ai
C3.ai (NYSE: AI) is a leading AI enterprise software developer. Some of the largest companies in the world use C3.ai, including the federal government. The U.S. Air Force uses C3.ai to predict points of failure during operation and identify the spare parts that are needed for repairs. Shell uses C3’s advanced software to monitor and maintain more than 10,000 pieces of equipment across its energy assets. While the stock hasn’t kept up with the broader market this year, these relationships with large organizations point to a massive opportunity on the horizon.
The company’s partnerships with leading cloud providers like Amazon Web Services and Alphabet‘s Google Cloud are working to its advantage. These partnerships are a key driver of C3.ai’s growth and are helping to reduce friction in new customer acquisitions.
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 lowered the cost for customers, it caused revenue growth to slow over a year ago, but it’s starting to pick up. Management’s guidance calls for full-year revenue growth between 19% and 27%, which is a catalyst for the stock.
C3 continues to report high interest from many organizations. In the most recent earnings report, the company said it received nearly 50,000 inquiries from businesses for its generative AI applications. This shows the transition to a consumption-based model has made its offering more attractive to new customers by lowering the cost.
The recent acceleration in growth has brought the price-to-sales ratio from 16 a year ago down to a more reasonable 12. Assuming the company delivers on its revenue guidance, the lower valuation could attract more investors and lift the stock to new highs later this year.
2. Meta Platforms
A stronger digital advertising market has driven accelerating revenue growth for Meta Platforms (NASDAQ: META) over the last year, but the stock still trades at a reasonable valuation that could justify more new highs. Meta is making progress integrating AI services across its social media platforms, which is contributing to revenue growth.
Meta AI has rolled out on Instagram, Facebook, WhatsApp, and Messenger, and it is already helping to drive higher user engagement. The bonus is higher advertising revenue, which is how Meta Platforms monetizes the billions of users across 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 top-line momentum.
Investors have been concerned about increasing competition from other social media apps, such as TikTok. However, Meta’s AI infrastructure is becoming a competitive advantage. Over half of the content recommended on Instagram is AI driven, with short-form video on Instagram’s Reels being a significant driver of engagement.
Meta has plenty of cash to continue investing heavily in AI. The company produced $49 billion in trailing-12-month free cash flow, and its growth prospects look solid. Analysts expect earnings per share to grow 18% on an annualized basis over the next several years, which should translate to similar returns for shareholders, given that the stock is priced at a market-average forward price-to-earnings ratio of 25.
Should you invest $1,000 in C3.ai right now?
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Suzanne Frey, an executive 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, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Ballard has positions in Meta Platforms. The Motley Fool has 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 Ready for a Bull Run was originally published by The Motley Fool
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