Looking for ways to profit from the rise of AI? These companies are poised to reap big rewards from this technology.
Despite some volatility, stocks are showing strong bullish momentum in 2024. The S&P 500 Index is already up about 18% year to date, with much of that impressive gain continuing to be driven by gains from prominent artificial intelligence (AI) companies.
But while mega-cap companies like Nvidia, Microsoft, and Apple have soared to new valuations this year, there are still some great AI stocks trading at a steep discount compared to their previous valuation peaks.
With that in mind, read on to find out why two Motley Fool contributors think you should jump on these tech companies that have what it takes to be winners.
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Palantir's growth engine is going from strength to strength
Keith Noonan: Soaring interest rates and slowing growth pushed Palantir Technologies ( PLTR -0.44% ) shares to a low of about $6 per share in December 2022, but they have since rebounded sharply. The stock is up 86% this year alone, and it's trading at 90 times this year's expected earnings, which is hardly low risk.
Meanwhile, Palantir shares are still down 18% from their peak, meaning the analytics and information software company may be poised to hit new highs.
Palantir has been reporting stable profits since 2023, and the company's revenue growth has resumed accelerating at an impressive pace: In its second-quarter report, the company achieved 27% year-over-year revenue growth and 80% growth in adjusted earnings per share (EPS).
A leader in big data analytics, the company has a proven track record in both the government and private sectors and is poised to continue delivering impressive profits and accelerating growth.
Palantir started as a company that provided analytics and intelligence software services to government clients, but in recent years the company's private sector business has grown rapidly: Revenue from commercial clients increased 33% in the second quarter, and the division accounted for 45% of total sales in the period.
Buoyed by strong demand for the company's Artificial Intelligence Platform (AIP) software suite, the commercial division will soon become Palantir's largest division. This is an encouraging outlook, given that private sector growth has consistently outpaced public sector customers in recent years. An analysis of trends within the commercial customer segment paints an even more favorable picture.
Sales to U.S. commercial customers grew 55% year over year to $159 million in the second quarter, accounting for approximately 52% of total commercial revenue. Sales to U.S. businesses now account for more than half of total division revenue and are growing at a much higher rate than the category as a whole. In other words, commercial growth should continue to accelerate, translating into higher total revenue.
As strong as things are in the private sector, Palantir's public sector growth is also strong: Revenue to government clients grew 23% year over year last quarter, up from 16% in the first quarter of this year.
The company's growth engines are stronger than ever: The company is growing at impressive margins and expanding rapidly, giving Palantir stock the potential to outperform.
The market is underestimating Trimble's growth potential
Lee Samaha: Workflow technology company Trimble (TRMB 1.68%) recently reported well-received second-quarter earnings, even as its stock price remains down nearly 41% from its all-time high. The company provides hardware for precise positioning, as well as software and services that plan and model daily workflows, and use advanced data analytics to optimize operations.
The productivity gains offered by its technology make it attractive to customers at any stage of the cycle, but the company has faced some tough end markets this year, particularly in transportation, where end demand has slowed due to a significant oversupply in the freight market.
The story was different within the company's core Architects, Engineers, Constructors and Owners (AECO) business, where annual recurring revenue (ARR) grew 18% year over year in the second quarter. Two-thirds of the growth came from existing clients and one-third from new clients, as the company's solutions help reduce waste and maximize execution on construction projects.
Trimble's increasing recurring sales of software and subscription services continues to boost the company's margins and cash flow conversion rates, a trend that is very likely to continue as improvements in data analytics (e.g., Trimble is building AI capabilities into its products) increase added value for customers.
As such, the company's products are becoming an increasingly important part of its customers' daily workflows, which should create opportunities to sell more services to them. Trimble expects ARR to increase by 11-13% in 2024, and with the economy likely to be even more robust in 2025, ARR could increase further for the company, which has a bright future.
Trading at a significant discount, Trimble stock looks like a smart buy right now.
Keith Noonan has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends Trimble and recommends buying Microsoft January 2026 $395 calls and selling Microsoft January 2026 $405 calls. The Motley Fool has a disclosure policy.
