Artificial intelligence (AI) has grabbed investors’ attention thanks to its potential to revolutionize so many industries, from healthcare to automotive. In fact, some researchers predict the size of the AI market could soar past $1 trillion by 2030. So, investors have bought shares of possible winners, including those powering AI models and companies using AI to improve their operations.
This has produced explosive gains in some stocks, which may prompt you to wonder if, in some cases, many years worth of anticipated good news is priced into shares at their current levels. That’s a valid question, and it’s clear that, as with any new, high-growth area, some gainers don’t have what it takes to keep up the pace.
But there are some that do. In fact, two top AI stocks that have climbed more than 200% over the past year seem unstoppable. And that means it’s a great idea to buy these potential winners and hold onto them for the long term. Their gains may just be getting started.
1. Nvidia
Nvidia (NASDAQ: NVDA) leaped into the spotlight as it became the go-to company for the essential ingredient to power AI: the chip. The company is far from being new to designing chips, though.
Nvidia developed graphics processing units (GPUs) years ago, and they became the standard for the gaming industry. Their ability to handle many processing tasks simultaneously made them the crucial ingredient for all of the visual elements involved in powering games — and a few years down the road, this same ability made GPUs critical for powering AI too.
Today, Nvidia controls more than 80% of the AI chip market, and the company’s reputation, full suite of products and services, and rising investment in research and development mean it’s likely to stay ahead. Nvidia’s earnings over the past year show an impressive pace of growth, with annual revenue and net income rising by triple-digit percentages. Revenue has set records quarter after quarter, led by the company’s data center unit, which includes its AI offerings.
Story continues
It’s also important to note Nvidia’s products are in use by all of the major cloud platforms, meaning the company is able to reach customers through services they know and trust — and these cloud platforms work to sell Nvidia products to these customers.
Even considering Nvidia’s enormous gains over the past year and a half, the company only trades for 31 times forward earnings estimates, a reasonable price considering Nvidia’s dominance in the market and the growth prospects ahead.
2. Palantir Technologies
Businesses of all kinds own loads of data that, if collected and managed properly, could be extremely valuable for their operations. This is where Palantir Technologies (NYSE: PLTR) comes in. The software company helps corporate and government clients aggregate data and use it to make key decisions. And AI plays a central role in the process.
Last year, Palantir launched its Artificial Intelligence Platform (AIP), and business has been booming. In the company’s most recent letter to shareholders, Chief Executive Officer Alex Karp referred to AIP as the future of Palantir, and said it has already driven gains in revenue and customers. Palantir’s manner of introducing AIP to potential customers is particularly clever — the company hosts “bootcamps” to highlight its services and show individual companies how AIP could be a game-changer for them.
Palantir once was known largely for serving governments, but these days, it has put its focus on growing its commercial business, and those efforts are bearing fruit. In the fourth quarter, Palantir’s commercial revenue growth outpaced government revenue growth — with a 32% gain versus an 11% gain. And U.S. commercial revenue, in particular, took off, climbing 70% year over year.
Now let’s talk valuation. Palantir’s might seem lofty at 74 times forward earnings estimates, but I’d be willing to pay a premium for this stock, knowing the company is in the process of making an important shift toward increasing its commercial business and growing its newly launched AIP service.
Here, it’s key to imagine potential a few years down the road. And from that angle, considering the momentum in commercial customers and AIP, Palantir looks like a clear buy today.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
See the 10 stocks
*Stock Advisor returns as of February 26, 2024
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
2 Unstoppable Artificial Intelligence (AI) Stocks Up More Than 200% to Buy and Hold for the Long Term was originally published by The Motley Fool
