Technological innovation comes in many forms, and one innovative sector that is gaining in importance is artificial intelligence (AI). AI seeks to simulate human behavior, and when combined with machine learning (ML), it can also learn from accumulated data without explicit programming.
Companies ranging from small start-ups to established tech giants are working to leverage the benefits of AI. Among them, Alphabet (GOOGL -2.19%) (GOOG -2.40%) and Palantir (PLTR -0.67%) deserve particular attention, both for their AI innovations as well as the current state of their stocks. Let's take a closer look at these two top AI stocks poised to start a bull run.
1. Alphabet
Google parent Alphabet benefits from numerous tailwinds in the AI space. This competency comes largely from Google AI, its division devoted to studying and applying the technology.
Google AI researches advancements in the field, applying the technology to products and creating tools to make AI and ML universally accessible. Moreover, a $116 billion cash hoard and ownership of AI-focused companies such as DeepMind bolster its competencies.
Alphabet applied its technological efforts to endeavors as diverse as predicting weather and enhancing breast cancer screening. It also touches on the most critical parts of the company, such as its search engine and Google Cloud. This allows for the development of personalized cloud-based intelligent products and other enhancements.
Additionally, investors may have an opportunity to buy Alphabet at a discount. Slowing growth amid a digital ad slowdown weighed on investor sentiment. Revenue grew by only 6% in the latest quarter, and a drop in net income contributed to a falling stock price. Today, Alphabet's stock price is down more than 40% from its high set in November 2021.
Alphabet's price-to-earnings (P/E) ratio of 17 is a multiyear low and makes the surprisingly undervalued tech stock cheaper than its mega-tech peers. As digital advertising makes a comeback, investors will probably take notice of that low valuation, allowing for AI to bolster a recovery in Alphabet stock.
2. Palantir
Palantir operates platforms that develop analytical insights in the national security and business realms, and AI and ML play critical roles in its processes. While it may lack Alphabet's resources, Palantir excels at organizing disparate data sources and recommending courses of action.
Palantir employs an end-to-end solution, an approach enabling the technologies to evolve over time and encompass downstream operations. Palantir's software is also interoperable, meaning it can make use of data and apply AI and ML regardless of a data source.
That approach left Palantir with no true competitors. Despite the Palantir Foundry subscription's $1 million per-month expense, the commercial software package grew its U.S. subscriber base by 124% in the third quarter of 2022. Also, over the first nine months of 2022, its revenue of $1.4 billion increased by 26% compared with the same period in 2021.
Admittedly, its AI capabilities did not insulate Palantir from the bear market, and it's stock price dropped by more than 85% from its early 2021 high. Also, while its price-to-sales (P/S) ratio of 7 is near all-time lows, the software-as-a-service (SaaS) stock appears expensive relative to other growth tech stocks.
Still, a compelling product offering, lack of competitors, and continuing growth give Palantir a strong market advantage. Such attributes could foster an AI-driven comeback in Palantir stock.
