The growing adoption of artificial intelligence (AI) has sent shares of companies involved in the proliferation of this technology soaring over 16 months or so, with many names seeing a parabolic rise in their stock prices.
A parabolic move is a rapid rise in the share price of a company in a short amount of time, akin to the right side of a parabolic curve on a chart. Nvidia (NVDA +2.57%) is a classic example of this phenomenon. The graphics specialist has seen a parabolic rise in its stock price since the beginning of 2023, with its shares jumping a whopping 439% since then. Nvidia, however, is one of the many companies gaining from AI adoption.
Advanced Micro Devices (AMD +3.50%) and Palantir Technologies (PLTR 1.87%) are two more names that are capitalizing on AI. Let's look at the reasons why these two AI stocks could make a parabolic move.
1. Advanced Micro Devices
Nvidia's Q4 fiscal 2024 results, which were released on Feb. 21, boosted investor confidence thanks to the company's outstanding AI-fueled growth and outlook. The stock deservedly jumped big time following its report, but management's commentary on the latest earnings call made it clear that there is room for more than one player in the lucrative AI chip market.
Nvidia predicts that the supply of its next-generation AI graphics cards will not be enough to support demand. It is worth noting that the company's current-generation flagship H100 AI chip is already commanding a waiting period of nine months to a year. So, it won't be surprising to see Nvidia's customers looking for alternatives as no one would want to be left behind in the AI arms race.
This is where AMD can step in. The company was originally anticipating $2 billion in revenue from sales of AI chips in 2024 but has substantially raised its estimate to $3.5 billion now. It's likely that AMD will generate stronger AI revenue in 2024. That's because AMD's foundry partner is substantially increasing its capacity to manufacture advanced AI chips.
NASDAQ: AMD
Key Data Points
Market research firm TrendForce reports that Taiwan Semiconductor Manufacturing, popularly known as TSMC, will increase its advanced chip-packaging capacity to a range of 33,000 to 35,000 wafers a month by the fourth quarter of 2024. That would be more than double TSMC's monthly capacity of 14,000 wafers to 15,000 wafers at the end of last year.
Given that AMD is one of TSMC's top customers, it won't be surprising to see the former benefiting from its foundry partner's increased packaging capacity. As it turns out, AMD management remarked on the previous earnings conference call that it has "made significant progress with our supply chain partners and have secured additional capacity to support upside demand."
So, the chances of AMD winning a bigger share of the AI chip market in 2024 cannot be ruled out. This could help the company outperform Wall Street's expectations in the coming quarters. Analysts currently expect AMD's earnings to increase 37% in 2024 to $3.64 per share, followed by a stronger jump of 50% next year to $5.46 per share.
AMD EPS Estimates for Current Fiscal Year data by YCharts.
The market can reward AMD stock handsomely for such terrific earnings growth, especially if AI helps it turn in better-than-expected results. That's why investors would do well to buy this semiconductor stock right away before it jumps further.
2. Palantir Technologies
Share prices of Palantir Technologies have shot up significantly of late following the release of the company's Q4 2023 results on Feb. 5. More specifically, Palantir stock has shot up a whopping 37% since then, indicating that it is already on a parabolic run.
NASDAQ: PLTR
Key Data Points
AI has played a central role in Palantir's latest surge. Palantir management pointed out on the company's recent earnings conference call that the demand for its Artificial Intelligence Platform (AIP) is expanding its addressable market and "propelling growth both through new customer acquisitions and expansions with existing customers."
It is worth noting that the adoption of Palantir's AIP software has led to a solid acceleration in deal activity. The company saw a 2 times year-over-year jump in the number of deals worth $1 million or more in the previous quarter. Palantir's aggressive go-to-market strategy of conducting boot camps for customers to help them understand how to integrate AI into their operations led to robust growth in its commercial business.
Palantir says that it conducted 560 boot camps to help roll out AIP last year. This explains why the company's Q4 commercial revenue increased an impressive 32% year over year to $284 million, outpacing the 20% growth in overall Q4 revenue to $608 million. Even better, the average trailing-12-month revenue per customer of its top 20 customers increased 11% year over year to $55 million. This suggests Palantir's customers are now willing to spend more on the company's offerings.
Meanwhile, the total value of future contracts signed by Palantir, formally known as remaining performance obligations, increased nearly 28% from the year-ago period to $1.24 billion in the previous quarter. All these metrics suggest that Palantir's future revenue pipeline is improving thanks to AI.
What's more, IDC estimates that the overall AI software market could grow from $64 billion in 2022 to $251 billion in 2027. Within the AI software market, AI platforms are predicted to grow at an annual rate of 36% through 2027. Palantir, therefore, is at the beginning of a massive growth curve, and the company is well-placed to take advantage of the AI software platform space thanks to its leading position in this niche, as per IDC.
The above catalysts tell us why analysts are predicting Palantir's earnings will increase at an annual rate of 85% for the next five years, which would be a big jump over the paltry annual growth of 2% seen in the last five years. So, there is a good chance that Palantir stock could continue soaring following its parabolic breakout, which is why investors should consider buying it without much delay.
