The tech sector has soared this year partly on hopes that new artificial intelligence (AI) technologies will drive the next major revolution in business and beyond.
Despite those gains (the Dow Jones Industrial Average recently set new all-time highs), several tech stocks continue to trade down significantly from their peaks, setting up excellent buying opportunities. Among these undervalued tech stocks, Palantir (PLTR 3.73%) and The Trade Desk (TTD 1.67%) look like particularly good buys today.
Two Motley Fool contributors were asked to provide some details on these two discounted stocks. Here's what they found.
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Palantir: This red-hot AI stock still has huge potential
Keith Noonan: No question about it, artificial intelligence (AI) has been 2023's hottest stock market trend -- and it powered impressive gains for some top players in the space. With Palantir's share price up roughly 178% this year, you can certainly count the data analytics and AI specialist among the big winners.
Despite the big 2023 runup, the stock still trades down roughly 55% from the high it reached in early 2021. More importantly, the business appears to be in the early stages of capitalizing on massive long-term opportunities in the AI space.
It launched the Palantir Artificial Intelligence Platform (AIP) software suite in May. By the time the company reported its second-quarter results in August, over 100 clients had already signed up for the service. With the third-quarter report Palantir published early in November, the company announced that nearly 300 organizations had signed up for AIP.
The AI service already appears to be spurring a new growth phase for the company. Palantir's revenue climbed 17% year over year to $558 million in Q3. This was a significant acceleration from the 13% growth it posted in Q2. Even better, there's a good chance that organizations that have begun to use AIP will scale up their usage over time, spurring continued revenue growth for Palantir.
Crucially, Palantir also turned a corner when it came to profitability. The AI specialist just recorded its fourth consecutive quarter of profitability on a generally accepted accounting principles (GAAP) basis. With net income of $72 million last quarter, Palantir's net income margin was approximately 13%. That's an impressive performance for a company that recently launched and marketed a major new tech service and continues to invest in other long-term growth initiatives.
With Palantir's AI opportunities heating up and its financial profile continuing to improve, the stock could still deliver market-crushing returns for investors.
Digital advertising is ready for a rebound
Jeremy Bowman (The Trade Desk): Stocks soared on Wednesday after Federal Reserve Chairman Jerome Powell indicated that the central bank was likely done raising interest rates for this cycle and that it expected to lower the benchmark federal funds rate three times next year.
However, few stocks gained as much as those in the adtech sector. Advertising is one of the first places that businesses cut spending when they're anticipating a recession. Now, it seems like the economy will get the soft landing that the Fed had been steering it toward, and Powell said there was little basis to think the U.S. was currently in a recession. Next year's interest cuts should support that soft landing.
Among the winners from that announcement was The Trade Desk, the leading independent demand-side advertising platform. The stock price jumped 4% after the Fed delivered its latest statement.
The Trade Desk is a long-term outperformer on the stock market as the company has a reputation for forging strong relationships with ad agencies, innovating with new products like its AI platform Kokai, and deploying easy-to-use, self-serve technology.
Shares of Trade Desk tumbled last month after the company gave weaker-than-expected guidance for the fourth quarter, but that sell-off and the improving macroeconomic environment have set up a good buying opportunity. The Trade Desk is now down 34% from its all-time high.
The Trade Desk should benefit from a number of catalysts next year as it deploys new features from Kokai, rides a recovery in digital advertising, and as lower interest rates should encourage more business investment and an increase in advertising spending.
The company is solidly profitable and still growing quickly. If the economy strengthens and market sentiment improves, The Trade Desk's stock could soar in 2024.
