The hype surrounding artificial intelligence (AI) reached a fever pitch this year when private company OpenAI unleashed its ChatGPT online chatbot on the world. It has the ability to rapidly answer complex questions and even write computer code, and it attracted a multibillion-dollar investment deal from Microsoft.
Wall Street has been clamoring to pin down the potential value of this rapidly developing technology, but so far, no firm has been quite as bullish as Cathie Wood's Ark Investment Management.
It believes AI could add $200 trillion to global economic output by 2030, and that software companies in the industry could generate $14 trillion in revenue by that time, creating $90 trillion in enterprise value.
If those figures come to fruition, there could be substantial upside on the table for most companies in the space given they're still relatively small. Here are two that could be among the biggest winners.
1. Splunk
AI's ability to complete complex tasks in a fraction of the time humans can will lead to an explosion in productivity. That's the theory behind Ark Invest's financial estimates for the industry, and it's the reason Splunk (SPLK) could create substantial value in the long run.
The company is a leading provider of machine learning software that helps businesses unlock incredible gains in efficiency. Splunk's specialty is ingesting unfathomable amounts of data in a live environment, and instantly analyzing it to deliver actionable insights a business can use to generate more revenue or save on costs.
Around 15,000 customers are using Splunk for security, information technology operations, and observability. Puma, the sporting apparel company, once had trouble detecting issues with customer orders due to a basic monitoring system. Thanks to Splunk, its online sales channels now automatically detect issues in 15 minutes with pinpoint accuracy, whether a customer's card declined, or inventory systems aren't functioning. That's down from hours previously, when Puma used manual processes.
Similarly, global beer giant Heineken delivers 13 billion gallons of product each year, and it uses Splunk to tie its operations together from brewing to logistics. Splunk works across Heineken's 4,500 digital applications and observes 25 million messages per month, ingesting that raw data and spitting actionable guidance out the other side.
About 790 of Splunk's customers were spending at least $1 million per year at the end of fiscal 2023 (ended Jan. 31), contributing to the company's $3.67 billion in annual recurring revenue. That's a fraction of what Splunk estimates is a $100 billion opportunity, but given Ark's estimates for AI on the whole, this company could generate a significant amount of value in the remainder of this decade.
2. C3.ai
If the AI industry does create $90 trillion in enterprise value by 2030, C3.ai (AI -0.85%) could be set for explosive growth given the company is valued at just $2.5 billion right now. It's a first-of-its-kind enterprise AI company -- in fact, it pioneered the industry.
C3.ai develops AI applications for its business customers, whether they need a ready-made solution or something entirely custom. Those customers operate across 14 industries including oil and gas, manufacturing, healthcare, financial services, and even the U.S. government. By using C3.ai, companies can accelerate their adoption of this advanced technology rather than building it from scratch, which can consume a significant amount of time and resources.
C3.ai's progress in AI is also recognized by some of the world's largest tech giants. It now sells AI applications jointly with Amazon Web Services, Microsoft Azure, and Alphabet's Google Cloud. Those cloud providers use C3.ai to improve their own product offerings to customers. For example, a business can develop AI applications 26 times faster with C3.ai on AWS compared to using AWS alone.
Investors should be aware of a couple of things before buying C3.ai stock. First, its revenue growth has stalled because the company is in the middle of transitioning away from subscription-based pricing to consumption-based pricing. It will eliminate lengthy negotiations and convoluted onboarding processes when acquiring new customers, and C3.ai expects revenue growth to come in at 30% from fiscal 2024 onward.
Second, the company was recently called out by a short seller for discrepancies in its financial statements, mainly relating to how revenue is being recorded. C3.ai hasn't responded yet, and it may feel confident enough in its position that a response isn't warranted, but it's something to be wary of, nonetheless.
C3.ai has been a volatile stock since it listed publicly in December 2020, quickly reaching an all-time high of $161 amid the red-hot tech market. But it has since crashed by 85% as investors began to sour on technology stocks, and because the company failed to deliver on growth expectations. For investors seeking exposure to the potential value creation AI has to offer, and who have an appetite for risk, it might be worth taking a small position in C3.ai stock.
