There's little question that 2023 marks a coming-out party for artificial intelligence (AI). The public debut of ChatGPT helped illustrate the wide and various use cases for generative AI, sparking the imagination of the public and businesses alike.
The subsequent gold rush for all things AI has investors scrambling to profit from the massive potential afforded by the technology. They might just be on to something. One of the more bullish prognostications comes courtesy of Cathie Wood's Ark Investment Management, which estimates that the global AI software market could represent a $14 trillion opportunity by 2030.
Chipmaker Nvidia has captured most of the headlines, as its semiconductors are used to provide the computing horsepower necessary to run AI systems. As a result, the company forecast 64% year-over-year revenue growth in the current quarter.
However, there are other companies getting a boost from AI that could present compelling investing opportunities. Here are five AI stocks up more than 100% so far this year (as of market close on Thursday) that could generate additional gains. Let's take a look.
Image source: Getty Images.
1. C3.ai -- Up 224%
Topping the list is C3.ai (AI 3.02%). The company, with its AI-centric stock ticker, has attracted a lot of attention in 2023, but the jury is still out as to whether or not the battleground stock will ultimately be successful. The downturn highlighted a weakness in its pricing policy, which prompted an abrupt about-face.
C3.ai, which supplies enterprise-level businesses with software-as-a-service (SaaS) AI applications, initially embraced a subscription-based pricing plan, but customers were reluctant to sign contracts in the face of macroeconomic headwinds. This forced the company to change to a consumption-based model.
Thus far, the results are inconclusive. For its fiscal 2023 fourth quarter (ended April 30), C3.ai generated revenue that was flat year over year at $72.4 million, resulting in a loss per share of $0.58, which worsened 5%. Considering the recent fervor and how quickly others are taking advantage of the opportunity afforded by AI, this is cause for concern.
At 14 times sales, C3.ai is getting pricier by the day. I wouldn't buy the stock, but for investors who do, it should only be as a small part of a balanced portfolio.
2. BigBear.ai -- Up 216%
Next on my list is BigBear.ai (BBAI 8.43%), which provides decision making and intelligence analysis fueled by AI and machine learning for governments, healthcare companies, and manufacturers. The company provides digital simulations that address issues with supply chains, logistics, process optimization, operations, and risk management, according to its website.
The company has worked to leverage the enthusiasm generated by recent advancements in AI, but thus far has had little (financial) success. In the first quarter, revenue grew to $42 million, up 16% year over year, resulting in a net loss of $26 million and a loss per share of $0.19, compared to a loss of $0.14 in the prior-year quarter.
Among the AI stocks listed here, BigBear.ai is the smallest -- with a market cap of roughly $300 million -- and potentially the riskiest. Granted, the company has a 22-year history and serves 19 U.S. defense and intelligence agencies, but it has yet to prove its recent entry into the commercial markets will succeed.
BigBear.ai is also unprofitable and was forced to raise capital over past year when its reserves were running low. Furthermore, the company doesn't have much of a track record in the limelight, having gone public just two years ago via a special purpose acquisition company (SPAC) merger.
While the opportunity is certainly intriguing, BigBear.ai is simply too risky. With so much uncertainty, I'd take a hard pass on this one.
3. Palantir Technologies -- Up 134%
Palantir Technologies (PLTR 3.73%) is the brainchild of PayPal co-founder Peter Thiel. In the wake of 9/11, Thiel envisioned a system that could gather information from various government and intelligence databases and subject it to the rigorous analysis capabilities of AI. By detecting connections that might otherwise not be apparent, Palantir's AI systems could follow a trail of digital breadcrumbs that would lead to would-be terrorists.
During the ensuing two decades, Palantir has since expanded its complex but elegant solution to providing actionable information to enterprise level businesses, setting the company on the road to AI stardom.
In the first quarter, Palantir reported revenue that grew to $525 million, up 18% year over year. Most surprising was management's revelation that the company was profitable for the second consecutive quarter and expected those profits continue for every quarter this year.
The accelerating interest in AI has drummed up quite a bit of business, with CEO Alex Karp noting in a recent shareholder letter, "The depth of engagement with and demand for our new Artificial Intelligence Platform is without precedent."
Palantir's government contracts will provide a foundation while the company continues its expansion into enterprise. At 16 times sales, Palantir is the most expensive of these five stocks, but also represents one of the most compelling opportunities.
4. Meta Platforms -- Up 120%
While Meta Platforms (META 0.43%) is primarily known for its social media chops, it has a long history of employing AI to advance its agenda. The company uses AI to target digital advertising to its 3 billion daily and 3.8 billion monthly visitors. It was also an early adopter of these sophisticated algorithms to tag people in their photos and surface content of interest to users.
Meta Platforms makes the vast majority of its revenue from digital advertising, but the ad market has been decimated by the flailing economy. Signs of a pending rebound and the company's further adoption of AI have sent the stock soaring, more than doubling so far this year. There could be more to come, however, as Meta is still 31% off its mid-2021 peak.
The recovering ad market could provide the fuel Meta needs to rise even further, as adtech stocks historically gain ground ahead of a broader macroeconomic recovery.
As an example, Alphabet had already gained 49% by the time the Great Recession officially ended in June 2009. Furthermore, that stock eventually doubled that year, which suggests Meta could enjoy a similar fortune.
As a result of the current price surge, Meta isn't the screaming bargain it was just six months ago. That said, at just 6 times sales, it's still far below its average valuation over the past decade, giving investors the opportunity to get shares that are cheap from a historical standpoint.
Data by YCharts
5. AppLovin -- 114%
Rounding out five of the best-performing AI growth stocks so far this year is AppLovin (APP 6.66%). The aptly named mobile app development platform helps businesses increase the value of in-app advertising and also helps get their apps discovered.
AppLovin has pivoted to focus on its most lucrative opportunities and gained some traction during the first quarter. Revenue of $715 million grew 14% year over year, while software platform revenue -- one of the aforementioned opportunities -- grew 199%. This helped the company reduce its net loss to $5 million, from $115 million in the prior-year quarter.
Even though AppLovin isn't yet profitable, it's generating strong operating cash flow and free cash flow of $289 million and $283 million, respectively. This suggests that sustainable profits are just a matter of time.
Like Meta Platforms, AppLovin's mobile advertising was hammered during the downturn. Its business is showing green shoots and the company's new machine learning engine, Axon 2.0, gives AppLovin an advantage over the competition. The company generated a 48% year-over-year increase in revenue per install -- even as rivals declined. This shows that AppLovin has "a machine learning edge in locating high lifetime value users for app advertisers," and suggests additional "market share gains among higher paying advertisers," according to Bank of America Securities analyst Omar Dessouky (via The Fly).
When the mobile ad market rebounds, as it no doubt will, AppLovin will be well positioned to leverage its AI expertise to generate future profits.
