The rapid adoption of artificial intelligence (AI) across multiple industries has led to significant stock price increases for several companies over the past year and a half, with the tech-heavy Nasdaq 100 Technology Sector Index posting an astounding 80% increase since the start of 2023.
Thanks to AI, many technology companies have seen their stock prices soar, including Nvidia, SoundHound AI, Super Micro Computer, Broadcom, etc. A parabolic movement refers to a sudden increase in stock prices in a very short period of time, like the right side of a parabolic curve.
Let's take a closer look at two stocks that could soar as AI becomes more widespread.
1. ASML Holdings
ASML Holdings (NASDAQ: ASML) is arguably one of the most important companies in the AI revolution. The company's extreme ultraviolet (EUV) lithography equipment helps chipmakers and foundries shrink chip sizes. Specifically, EUV lithography enables semiconductor companies to manufacture chips based on 7-nanometer (nm), 5-nm, and 3-nm process nodes.
The smaller the node size, the more powerful and power-efficient the chip is considered to be. A smaller process node allows chipmakers to pack more transistors into a smaller area, resulting in more computational power and less heat. Not surprisingly, popular AI chips such as Nvidia's H100 and AMD's MI300 series accelerators are based on the 4nm process node.
These chipmakers can only make these tiny chips on machines from Dutch semiconductor giant ASML, which dominates the market. This strong position puts ASML on a long-term trajectory of impressive growth, with the EUV lithography market expected to grow 22% annually over the next decade, reaching $37 billion in annual revenue in 2030.
More importantly, semiconductor companies around the world will be investing huge amounts of money in upgrading their infrastructure. The United States, for example, is expected to triple its semiconductor manufacturing capacity by 2032. U.S. capital investment in semiconductors is expected to be about $2.3 trillion between 2024 and 2032, compared to $720 billion over the past decade.
Meanwhile, Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest semiconductor foundry, is reportedly purchasing $12.3 billion worth of EUV machines in the coming years, which bodes well for TSMC and could help the company maintain impressive growth in the long term, given that the AI chip market is likely to grow at an annual rate of about 41% through 2032.
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Not surprisingly, ASML's revenue is expected to grow at an impressive pace starting next year, after flat performance in 2024.
ASML current quarter EPS forecast chart
Moreover, analysts expect the company's revenue to grow at a healthy annual growth rate of 21% over the next five years. If ASML's growth improves, the market could give the stock more room to rise. The semiconductor industry bellwether's shares have risen 20% so far in 2024. Still, as the discussion above shows, there's a good chance it could end the year on a much bigger upside, as rising spending on semiconductor manufacturing equipment could spark a sharp rise in ASML stock.
2. Palantir Technologies
Palantir Technologies (NYSE: PLTR) shares are already up nearly 32% since reporting its Q2'24 earnings on August 5th, so it's probably fair to say they've already been on a steep rise recently.
Palantir's stock price surge this month is due to the company's rapidly growing AI revenue pipeline. More specifically, Palantir's AI software platform is gaining healthy traction among customers, accelerating the company's growth. The company reported second-quarter revenue of $678 million, up 27% year over year.
This is much faster than the 13% year-over-year revenue growth Palantir posted in the same quarter last year. During the company's recent earnings call, Palantir executives noted that its Artificial Intelligence Platform (AIP), which allows customers to integrate AI into their use cases, is playing a direct role in driving the company's growth.
Not only is the company winning new clients for its AI services, but existing clients are also signing up for larger deals to use Palantir's AI services. For example, the company's number of commercial clients in the U.S. grew 83% year over year, and its overall client base grew 41% year over year.
The company also closed 27 deals worth more than $10 million, up 50% from the same period in 2018. With an increased number of clients and larger deals, Palantir is now expecting revenue of $699 million for the current quarter, up 25% from the same period in 2018, up from 17% growth in the same period last year.
More importantly, Palantir appears poised to continue improving its revenue growth, given that it has a staggering $4.3 billion in remaining contract value — a metric that refers to the company's total remaining contract value at the end of the quarter, up 26% from the same period last year.
Moreover, Palantir's expanding customer base and spending has been accompanied by an improving margin profile for the company: The company's adjusted operating margin rose to 37% last quarter from 25% a year ago. Palantir management said its business has “strong unit economics,” meaning it can generate more profit from each customer and has low customer acquisition costs.
As such, it's quite likely that Palantir's profit margins will continue to improve, contributing to the company's healthy earnings growth. As expected, consensus estimates project Palantir's earnings to grow at a compound annual growth rate of 85% over the next five years, suggesting that the stock price could continue to rise after its recent surge.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares in and recommends ASML, Advanced Micro Devices, Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
2 Artificial Intelligence (AI) Stocks That Could Soar was originally published by The Motley Fool.
