Artificial intelligence (AI) has been described as the fourth industrial revolution. Companies across every major industry are investing in this technology to reduce costs, improve labor productivity, and develop new products. Statista projects the global AI software market to reach $126 billion in 2025, and it should rapidly grow from there. Given all that projected growth, it's a ripe market to look for millionaire-making stocks.
But what exactly do you need to grow your money into $1 million? It depends on three factors: how much you invest, how many years you invest, and what return you get from your stocks. Whether you have $50,000 to put to work or a small amount of monthly savings, you're going to want to focus your search on companies that have a long runway of growth ahead. Companies that have sustained high double-digit annual growth in their revenue are usually the stocks that make their shareholders rich over time.
With that in mind, let's look at two top AI software companies that could potentially make your financial dreams come true.
1. Palantir Technologies
Palantir Technologies (PLTR 1.29%) has experienced strong demand for its software, which helped send its stock up 336% since bottoming out in 2022. It offers four software platforms -- Gotham, Foundry, Apollo, and Palantir Artificial Intelligence Platform (AIP) -- that organizations use to analyze and manage their data to make better decisions. Palantir has been used by the U.S. government for counterterrorism investigations, which speaks volumes about its capabilities and growth potential.
NASDAQ: PLTR
Key Data Points
There are a few reasons to like Palantir's business. It generates revenue from subscriptions, maintenance services, and licenses, which inherently is a profitable business model. It's even better when the company is demonstrating growing demand for its product. Even in a relatively weak software-demand environment, Palantir's revenue growth has accelerated over the last year and increased 21% year over year in the first quarter.
While the government makes up around half of the business, commercial revenue has been growing faster than government revenue thanks to growing interest in Palantir's AI software, or AIP, with the number of commercial deals nearly doubling year over year in Q1.
This momentum is what investors would expect for a company with great upside potential. When Palantir filed for its initial public offering in 2020, it estimated its total addressable market at $119 billion -- a huge opportunity compared to Palantir's annual revenue of $2.3 billion.
The stock recently hit a new high, but it trades at a more expensive price-to-sales (P/S) valuation than a year ago, which could limit its near-term gains. Investors currently value Palantir's business at 28 times its trailing-12-month revenue, or $62 billion. But this high valuation reflects a business that has a long runway of growth and is showing improving profitability, with its adjusted operating profit margin hitting a healthy 36% last quarter.
The massive opportunity in AI software and improving margins points to a lucrative return opportunity for long-term investors.
2. C3.ai
C3.ai (AI +2.05%) is another subscription-based AI software company with tremendous upside potential. C3.ai started in 2009 and has gradually expanded from providing energy utility software to serving businesses across several industries, including the U.S. military.
Revenue accelerated to a growth rate of 20% year over year in the most recent quarter. On the commercial side, C3.ai is benefiting from partnerships with cloud service providers through which it sells its software. The growth in the cloud computing market gives C3.ai a tailwind to reach new customers.
NYSE: AI
Key Data Points
After rocketing higher in 2023, C3.ai's stock is slightly down this year, and that is due to weak profitability. Over the last year, the company reported operating loss totaled $318 million on just $310 million of revenue, although it generated positive free cash flow of nearly $19 million last quarter.
Still, C3.ai's momentum in closing deals through its cloud partner network is a great sign for where it's headed. Its relationship with Amazon Web Services, Alphabet's Google Cloud, and Microsoft Azure continues to be very fruitful, with C3.ai's joint qualified pipeline with these cloud partners increasing by 63% year over year last quarter.
C3.ai is seeing growing interest in its generative AI software. Last quarter, management said it was "overwhelmed" by customer inquiries in these products and expects the number of inquiries to nearly double in the current quarter.
The stock trades at a lower P/S multiple of 10, which reflects C3.ai's weak profitability compared to Palantir. That said, the growing revenue is a bullish indicator for the stock over the next few years. Management guided for revenue growth to be approximately 23% in fiscal 2025 (which ends in April), which would be an improvement over last year's 16% growth rate.
All said, if C3.ai continues to win more deals, and shows improving margins, the stock should be off to the races in the coming years.
