Can you recall first learning about this strange concept known as “the cloud”? It was likely at some point in the 2010s. Many claimed it would be a massive boon for tech companies — and they were correct.
Expenditure on public cloud usage surged from $31 billion in 2015 to almost $200 billion in 2023. The Intelligent Cloud from Microsoft and Amazon Web Services (AWS) at Amazon have been excellent revenue streams, with annual run rates of over $100 billion for each. Since 2015, this technology has been the key driver of total returns of over 900% for both companies.
Artificial intelligence (AI) appears to be the next big thing. Some predict it will be as transformative as the internet. The International Monetary Fund states that it will transform nearly 40% of jobs globally, and data from Statista shows that the AI market will expand sixfold from $300 billion this year to over $1.8 trillion by 2030.
Here are four companies capitalizing on the growth in AI with the potential to bring great satisfaction to investors in the next six years.
Palantir at (NYSE: PLTR) is a favored stock, and much of the excitement is justified. Its core business involves managing, analyzing, and utilizing data to optimize decision-making. They use AI in their platforms for the private sector and governments.
Palantir’s latest product, the Artificial Intelligence Platform (AIP), is designed for defense and private sectors. It deploys on the customer’s network and employs large language models (LLMs). What does this mean? Here’s an example from Palantir.
Let’s say you’re a military operator responsible for forces in the field, and data arrives saying the enemy is gathering equipment nearby. The operator can visually assess the field and inquire about nearby enemy units and potential enemy formations. Then, they can instruct drones or satellites to capture images. This technology assists the operator in planning and operational decision-making.
Palantir has historically excelled in defense revenue. This is a wonderful source of income because governments have deep pockets. Additionally, the private sector offers a wide marketplace.
The company’s commercial revenue expanded 32% year-over-year (YOY) in the fourth quarter of 2023 to $284 million (an improvement from the 23% YOY growth in Q3), and government revenue rose 11% to $324 million. Palantir was also profitable on a generally accepted accounting principles (GAAP) basis for the fifth consecutive quarter, which is an impressive accomplishment for a high-growth tech company.
The stock trades for 25 times sales, which is not inexpensive, but this drops to 20 on a forward basis using sales forecasts. There is short-term risk due to the valuation, so consider purchasing over time. In the long run, Palantir’s expertise in AI is top-notch.
Here’s a term to add to your lexicon: robotic process automation (RPA). This automates tedious and non-value-adding tasks.
For instance, a mortgage broker could spend hours reviewing emails, downloading attachments, and manually inputting data into applications. With RPA, this can be automated, freeing the broker to concentrate on higher-level tasks like communicating with underwriters and contacting clients. This is an illustration of what UiPath (NYSE: PATH) does for its clients.
UiPath boasts over 10,800 clients, generating $1.4 billion in annual recurring revenue (ARR). Sales reached $326 million in the third quarter of UiPath’s fiscal 2024 (the three months ending Oct. 31, 2023) on 24% growth, impressive considering the challenging economic climate in 2023. UiPath also has a fortress-like balance sheet with $1.8 billion in cash and investments and no long-term debt.
UiPath faces tough competition in a fragmented industry, which may be the most significant hazard for investors. The company is not GAAP profitable, although it is positive in cash flow. The stock trades for 11 times sales, which is reasonable for the industry.
RPA has the potential to save companies substantial amounts of money by automating low-level tasks, and UiPath could be a significant long-term beneficiary of this trend.
Before I discuss this company, bear in mind that this stock has a market cap of under $1 billion, making it more speculative than others. Managing risk is crucial, so speculative stocks should only represent a set portion of your portfolio, based on your age, e.g., how much time you have for recovering losses, and risk tolerance. With that in mind, Evolv Technologies at (NASDAQ: EVLV) sells compelling technology that could save lives and potentially be highly profitable for investors.
At present, when entering a stadium or other venue, people queue to go through a metal detector one at a time, empty their pockets, and often receive a second screening with a wand. This is inefficient, and items are frequently overlooked.
Evolv’s technology differs. Multiple people can pass through the AI-powered machines, which examine various attributes, such as shapes, to identify guns or knives, rather than alerting for every metal object, like car keys. Alerts show security personnel where the object is detected, and they take appropriate action.
Schools, hospitals, and stadiums are Evolv’s target customers. Several major sports teams, school districts, and medical campuses already utilize it. Ending ARR in Q3 2023 was $66 million, on 129% year-over-year growth, and subscriptions leaped 137% to just over 4,000. With a market cap of $676 million, Evolv trades at a reasonable 10 times ARR and has tremendous potential.
I said that there was at least one company in this article that you may have never heard of, but it’s probably not this one. Amazon is known for its online marketplace but will also benefit tremendously from AI since AWS is the world’s leading cloud service provider.
AI software requires extensive data processing, much of which will occur in the cloud. Amazon also offers other AI solutions, like foundational models, allowing users to customize AI software to their requirements.
Amazon just released its Q4 2023 earnings, and they were extraordinary. Total revenue rose by 14% to $170 billion, accompanied by substantial increases in cash flow and operating income. As portrayed below, the stock increased but still trades below its five-year average, based on sales and cash flow.
AI will give Amazon a boost that should delight investors for years to come.
Should you invest $1,000 in Palantir Technologies right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bradley Guichard has positions in Amazon and UiPath. The Motley Fool has positions in and recommends Amazon, Microsoft, Palantir Technologies, and UiPath. The Motley Fool has a disclosure policy.
Prediction: These Could Be the Best-Performing Artificial Intelligence (AI) Stocks Through 2030 was originally published by The Motley Fool