That's where Palantir's AI and machine learning software comes into play. The company designs operating systems that use machine learning at the very core of their functionality, helping customers make better decisions and forecasts. The company has sizable contracts with various government agencies and a rapidly expanding list of private-sector customers.
Palantir has a large following of retail investor fans, making it a top meme stock. But this is a rock-solid business. Palantir generates a profit (as measured by free cash flow) and has a stellar balance sheet armed with more than $6 billion in cash and short-term investments and no long-term debt at the end of the third quarter 2025.
Should you invest in machine learning stocks?
Companies around the world are pouring resources into developing AI and machine learning software for diverse purposes, but this alone doesn't mean that investing in machine learning stocks is right for everyone.
Here are some of the potential benefits of an investment in machine learning stocks:
- Great growth opportunities, as the machine learning sector is poised to expand significantly
- Portfolio diversification
- Exposure to a wide swath of industries as various businesses adopt machine learning solutions
Naturally, there are also some risks that investors must recognize before buying machine learning stocks:
- During market downturns, businesses may invest less in their businesses and decide against adopting new machine learning solutions.
- A more compelling technology may emerge that makes machine learning less desirable.
- Machine learning companies may invest heavily in R&D, compromising profits in the near term for long-term success.
As the technology continues to improve, it will increasingly influence the ways many companies operate and interact with customers.
But the sector is still emerging, so machine learning stocks are generally best suited for buy-and-hold investors who are comfortable with plenty of price volatility. As the machine learning industry advances and matures, those who stay invested in machine learning stocks for many years could realize substantial returns.
Factors to consider before investing in machine learning stocks
Since machine learning companies represent a niche within the tech sector, individuals should be aware of how a machine learning stock investment will affect their portfolios. To achieve adequate portfolio diversification, investors may, for example, want to trim positions in other tech stocks.
Another consideration for investors is whether passive income is a priority. Because many machine learning companies must make significant investments in R&D to keep up with competitors, they don't have the luxury of returning ample amounts of cash to investors.
A third factor that potential investors should weigh is whether they have a high enough risk tolerance to ride out volatility. Unlike the steadiness of utility stocks or consumer staples stocks, tech stocks like those specializing in machine learning may suffer steeper drops when the economy experiences a downturn.