The age of artificial intelligence (AI) is upon us, and this new technology promises to unleash a new wave of creativity and convenience unlike anything we’ve ever seen. AI offers a tantalizing promise of helping automate tasks and achieve feats never before accomplished by humans. Investors excited about the prospects of AI and looking to ride this long-term wave can look for growth stocks who use AI in their businesses.
By taking advantage of the tailwind of this trend, you can slowly but surely increase the value of your investment portfolio. AI development is in its infancy because there is so much more that can be done with this revolutionary technology. Many companies are just beginning to discover the potential of AI for a wide range of tasks, from defense and chatbots to assisting with queries and providing deeper analytics and insights.
If you’re looking for solid AI-related stocks to put your money in, consider the trio shown below.
1. Palantir
Palantir (NYSE:PLTR) develops software platforms to enable comprehensive data analysis. Engineers are sent into the field to work closely with customers to help them integrate their data and optimize workflows, resulting in increased efficiency and better insight into how data from organization can be leveraged to obtain useful information.
The company launched its AI Platform (AIP) developed for industrial and military partners and applied it to customers in the commercial and government sectors. CEO Alex Karp is working with his leadership team to make the Palantir platform accessible to a wider range of organizations, including foreign companies, scientific researchers and academic institutions.
The company’s progress in growth is visible in its recent financial figures. For 2023, revenue increased 17% year-over-year to $2.2 billion, with U.S. commercial revenue increasing 36% year-over-year to $457 million. Palantir’s free cash flow generation also more than tripled year over year to $697 million. The first quarter of 2024 saw revenue continue its climb, increasing 21% year-over-year to $634 million. The company generated its sixth consecutive quarter of net income of $106 million and continued to generate positive free cash flow of $127 million.
In particular, U.S. commercial revenue grew 40% year-over-year to $150 million, with Palantir’s number of U.S. commercial customers jumping 69% year-over-year to 262. Karp estimates that revenue sales in the United States will be one of the main growth drivers for Palantir in the near term.
The company’s stable profitability, consistent free cash flow, and good momentum in securing commercial and government customers are testament to its growing influence. Palantir revealed during its 2020 IPO that its total addressable market for the commercial and government sectors was approximately $119 billion. With revenue of just $2.2 billion in 2023, this market estimate represents a considerable growth opportunity for the company.
2. Metaplatforms
Metaplatforms (NASDAQ:META) is a social media company that owns the popular chat program WhatsApp, the photo and video sharing application Instagram, and the social media site Facebook. At the end of April, the company rolled out Meta AI, the latest version of its AI assistant, built on its large language model (LLM), Llama 3. This AI tool is integrated into the search boxes of WhatsApp, Facebook, Instagram, and Messenger to allow users to ask questions in natural language that are easy to answer.
Meta offers much more, as the company plans to gradually introduce new features such as longer pop-ups as well as improved performance. Meta AI’s LLM model is trained on a large amount of data and CEO Mark Zuckerberg said in October last year that AI would be Meta’s biggest investment area for 2024, with the company ready to spend billions of dollars to strengthen its AI capabilities.
Meta reported a robust earnings set for 2023, with revenue up 16% year-over-year to $134.9 billion. Net income jumped 69% year over year to $39.1 billion and the company generated positive free cash flow of $43.8 billion, more than double the 19 billion dollars generated the previous year. The board also launched the social media giant’s first-ever dividend, with a quarterly payout per share of $0.50.
The strong momentum continued in the first quarter of 2024 (Q1 2024), with revenue up 27% year-on-year to reach $36.5 billion. Net profit for the quarter soared 117% year-over-year to $12.4 billion. The number of daily active people at Meta increased 7.3% year-over-year to 3.24 billion, demonstrating the social media company’s ability to continue attracting new users.
With the inclusion of Meta AI in its apps and the promise of continued improvements, investors can expect better numbers as more users flock to use Meta’s apps and platform.
3. Adobe
Adobe (NASDAQ:ADBE) has integrated its native generative AI application called Firefly onto its Experience and Creative Cloud platforms. In doing so, the company hopes to offer increased personalization and allow users to automate tasks while reducing search time and effort. Recent innovations include the new Generative Fill product for Adobe Photoshop, designed to enable customers to create stunning images.
Firefly allows customers to generate realistic photos using natural language, a huge benefit for non-technically trained users that helps reduce the learning curve. This generative AI tool has also been integrated into its core product Acrobat. Customers can ask questions and get information about PDFs and other document types. This extensive use of Firefly allows Adobe to offer greater customization and convenience.
Adobe reported strong earnings for the first half of fiscal 2024 ending May 31. Revenue rose 10.8% year over year to $10.5 billion, a record high. The digital media company saw its operating profit and net profit fall 13% and 13.7% year-over-year, respectively, due to billion-dollar termination fees related to its aborted attempt to purchase Figma. Without this non-recurring item, operating income and net income would have increased by 18% and 25.6% respectively over one year.
CEO Shantanu Narayen said the company’s AI approach has generated better value and resulted in a broader customer base. Adobe raised its annual guidance for net new annual recurring revenue, digital experience subscription revenue and earnings per share. Investors should view this upgrade as a vote of confidence in the company’s prospects as it harnesses the power of AI to expand its customer base and drive new profit growth.
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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Royston Yang holds positions in Adobe and Meta Platforms. The Motley Fool holds positions and recommends Adobe, Meta Platforms and Palantir Technologies. The Mad Motley has a disclosure policy.
3 AI Stocks to Buy and Hold for Big Long-Term Potential was originally published by The Motley Fool
