As large organizations gather more data, they'll need more artificial intelligence (AI) tools to process and analyze all that information. However, the constant buzz about new AI technologies can make it difficult for investors to separate the winners from the losers in this complex industry.
Today I'll examine three companies that leverage AI technologies to simplify tasks for government agencies, large corporations, and individual consumers, and why their stocks might be solid long-term investments.
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1. Palantir
Palantir (PLTR -0.09%) gathers and organizes data from disparate sources to help its clients make data-driven decisions. Its Gotham platform serves government agencies, and its Foundry platform serves enterprise clients. A third service, Apollo, constantly updates the software of both platforms.
The U.S. Army reportedly used Gotham to track down Osama Bin Laden back in 2011, while U.S. Immigration and Customs Enforcement (ICE) used it to track down and deport undocumented immigrants in recent years. Palantir boldly declares it will become the "default operating system for data across the U.S. government," and it's leveraging that battle-hardened reputation to expand Foundry's reach.
In its latest quarter, Palantir generated 56% of its revenue from government clients and the remaining 44% from commercial clients. Both segments are growing their revenues at high double-digit percentage rates, and Palantir expects its annual revenue to grow more than 30% each year from 2021 to 2025.
Palantir isn't profitable yet, but its adjusted operating margins have been expanding over the past year. Its stock isn't cheap at nearly 20 times next year's sales, but it could still have plenty of room to run as more government agencies and large companies access its AI-powered data mining tools.
2. C3.ai
C3.ai (AI -1.63%) develops AI algorithms that can be integrated into companies' existing software infrastructure. It also provides pre-built AI applications that can be accessed as stand-alone services.
Like Palantir, C3.ai only serves large enterprise and government customers, which deploy its services to increase their operating efficiency, streamline their supply chains, improve employee safety, and detect fraud.
C3'ai's revenue growth decelerated last year as the pandemic disrupted the industrial and energy sectors that brought in most of its revenue. But this year, its growth accelerated again as those headwinds waned, and the company expects its revenue to grow 35% to 36% for the full year.
Next year, analysts expect C3.ai's revenue to rise 33% next year, but those forecasts haven't factored in its recent five-year $500 million contract with the U.S. Department of Defense yet. An annual payment of $100 million would be equivalent to 40% of its estimated revenue this year.
C3.ai isn't profitable yet, but its stock isn't expensive at 10 times next year's sales estimate. It even recently authorized a $100 million buyback over the next 18 months to highlight the value of its stock -- but the inflation-related fears are still throttling its near-term gains. Therefore, I believe it's still a great time to accumulate shares of C3.ai before these latest tailwinds kick in.
3. Lemonade
Lemonade (LMND -1.83%) simplifies the byzantine process of buying insurance with a chatbot-powered mobile app. It offers renters, homeowners, term life, pet, and auto insurance products on a unified app, and uses AI algorithms to get its users an insurance policy in 90 seconds and process their claims within three minutes.
That streamlined approach has made Lemonade popular with younger and first-time insurance buyers in the US. It served 1.36 million customers in its latest quarter, up from 1.21 million customers a year earlier, but it could potentially gain tens of millions of new customers as it expands across more states and launches additional insurance products.
This year, Lemonade expects its in-force premium to grow 78%-80%, its gross earned premium to rise 83%-84%, and for its revenue to increase 33%-35%. But next year, analysts expect Lemonade's revenue to jump 70% as it laps a change to its proportional reinsurance agreements that temporarily throttled its growth in reported revenue in 2021.
Lemonade isn't profitable yet, but its stock doesn't seem too expensive anymore at 12 times next year's sales. It still faces plenty of near-term challenges, but its disruptive potential could make it a long-term winner.
