Artificial intelligence (AI) has been the driving force behind many technology companies for nearly two years now, which is why the Nasdaq 100 Technology Sector Index has risen a staggering 78% since November 2022, and the good thing is that adoption of this technology is still in its early stages.
Last year, the global AI market was estimated to be worth $136 billion. By 2030, this market is expected to reach nearly $827 billion. Therefore, buying and holding long-term, stable AI stocks could be a smart choice for investors looking to grow their wealth.
Here we take a closer look at two companies that stand to benefit from the adoption of AI in different sectors. More importantly, with both stocks trading at reasonable valuations, they certainly look worth buying at the moment.
Increasing demand for AI software is fueling the company's growth
As businesses and governments focus on harnessing the power of AI, demand for software that helps integrate the technology into their operations will soar in the coming years: S&P Global Market Intelligence predicts that the market for generative AI software will register a compound annual growth rate (CAGR) of 58% through 2028, generating annual revenue of $52 billion at the end of the forecast period, compared with $5.1 billion last year.
The company noted that organizations are investing more resources into generative AI software to improve operational efficiency and drive innovation in their businesses, which could be the reason for the growing demand for C3.ai's (NYSE: AI) generative AI software.
The company's revenue is expected to grow 16% to $310.6 million in fiscal year 2024 (ending April this year). C3.ai forecasts revenue of $382.5 million for the current fiscal year, up 23% from fiscal year 2023 levels and signaling a significant increase in the company's growth rate. C3.ai's improving growth profile can be attributed to an increasing number of customers choosing to use the company's enterprise AI software products.
C3.ai not only provides ready-to-use applications to its enterprise customers, but also provides development tools to create custom AI applications, and a software platform on which customers can build, launch, and operate generative AI applications for specific use cases. C3.ai also delivers its AI software solutions through multiple cloud computing partners, including Google Cloud, Amazon Web Services, and Microsoft Azure.
The story continues
In fiscal year 2024, C3.ai saw an astounding 52% increase in the number of deals closed, to 191, compared to the prior year. The company's partner network played a central role in this growth, with 115 deals closed through this channel, up 62% year over year. More importantly, C3.ai noted that its pipeline of qualified leads through its partner network grew 63% last year.
All of this points to a bright future for C3.ai, which is probably why consensus estimates predict the company's revenues will grow at a compound annual growth rate of almost 51% over the next five years. Therefore, C3.ai could be a top AI contender in the long term, and investors would be wise to buy now.
The company's stock currently trades at 9 times sales, which isn't much higher than the U.S. tech industry average of 8 times sales. The company isn't profitable yet, but it's expected to be profitable in the next few years.
AI's current quarter EPS forecast chart
This isn't surprising given the potential for accelerating growth for C3.ai, which could send the company's stock soaring in the future.
With the rapid adoption of generative AI smartphones, this name could get a big boost.
A recovery in the global smartphone market, driven by the emergence of generative AI-enabled devices, is shaping up to be a boon for Qualcomm (NASDAQ: QCOM), as evidenced by the company's third-quarter fiscal 2024 earnings (the three months ended June 23).
The semiconductor specialist, which derives most of its revenue from selling smartphone chips, reported total revenue of $9.4 billion, up 11% from a year ago, while adjusted earnings rose 25% to $2.33 per share from a year ago. The company expects current-quarter revenue of $9.9 billion at the midpoint of its guidance range, up 14% from the same period a year ago.
Qualcomm's adjusted earnings are also expected to grow 26% year over year. The guidance suggests Qualcomm's growth is accelerating, a trend that could continue for a long time to come, given the huge opportunity for AI smartphones. Market research firm IDC predicts that generative AI smartphone sales will grow 336% this year to 234 million units. IDC expects generative AI smartphone shipments to surge to 912 million units per year by 2028.
Qualcomm will be one of the biggest beneficiaries of this long-term growth trend, as 63% of its revenue comes from sales of smartphone processors. According to Counterpoint Research, the company controls an estimated 23% of the global smartphone application processor market, and its chips are used by major smartphone OEMs such as Samsung to power AI smartphones.
The generative AI opportunity is one reason analysts have appeared to raise expectations for Qualcomm's revenue growth in recent months.
QCOM's current quarter EPS forecast chart
But with the company's earnings currently growing at over 20%, it wouldn't be surprising if they outperformed consensus estimates. That's why Qualcomm stock seems like a no-brainer. The stock trades at 22 times trailing earnings and 15 times forward earnings, a significant discount to the U.S. tech industry average of 46 times earnings.
Should you invest $1,000 in C3.ai right now?
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, serves on The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Microsoft, Qualcomm, and S&P Global. The Motley Fool recommends C3.ai and recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
“Top 10 Artificial Intelligence (AI) Stocks to Buy Now” was originally published by The Motley Fool.
