Artificial intelligence (AI) has become an emerging growth sector in the tech economy. Both start-ups and established tech companies are working to capitalize on the technology. Analysts at Grand View Research estimate the AI market could expand to $1.8 trillion annually by 2030, suggesting a compound annual growth rate of 38% over the next eight years.
These increases should serve as a solid tailwind for numerous AI stocks, and both Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) and Palantir (NYSE: PLTR) appear well-positioned to enrich long-term investors through AI. Let’s find out a bit more about these two artificial intelligence stocks.
Admittedly, much of Alphabet’s attention recently has involved its upcoming 20-for-1 stock split. However, AI played a significant role in necessitating that split. AI is critical to the company’s mission to organize and democratize information.
To that end, Google search, YouTube, and numerous other products helped connect the populace with AI, taking Alphabet stock much higher over time. Additionally, the company credits its AI platforms with making discoveries as diverse as finding planets and detecting crop pests in Africa. Moreover, AI bolsters the Google Cloud, currently Alphabet’s fastest growth area, offering support to its data science and infrastructure platforms.
Such innovations feed into revenue growth. In the first quarter of 2022, Alphabet reported revenue of $68 billion. This was 23% higher than the year-ago quarter and included 44% growth for Google Cloud.
Still, net income dropped 8% during the period to $16.4 billion as unrealized losses on equity investments weighed on profits. Also, the stock has fallen 7% over the last year amid the bear market.
However, its $140 billion in liquidity gives Alphabet one of the most stable balance sheets in corporate America. Additionally, its P/E ratio of 20 is below other mega-caps in AI, such as Apple and Amazon. Considering its liquidity and revenue growth, this stock-split company arguably could lead the market recovery.
Palantir applies AI to analytical insights. No other AI data product focuses on insights, and as such, it has no direct competitor.
Its defense and law enforcement tool, called Gotham, became best known for helping the U.S. government find the terrorist Osama bin Laden. But due to the secretive nature of its analyses, Palantir has become difficult for investors to understand.
However, it may gain more exposure with another product called Foundry, which applies its analytical capabilities to commercial purposes. Since Foundry could deliver insights or ideas not conceived by humans, its potential is likely incalculable. Moreover, because the number of potential clients is exponentially larger on the commercial side, businesses will likely become its primary growth driver longer term.
Amid a slowing economy, Palantir still reported 31% year-over-year revenue growth in Q1, taking revenue to $446 million. Despite nearly $60 million in unrealized equity losses, it reduced its net loss to $101 million versus $123 million in the year-ago quarter.
But even with such improvements, the sell-off in tech stocks hit Palantir hard. It has fallen by over 75% since peaking at over $39 per share in February 2021. Still, the drop has taken its price-to-sales ratio to 10, just above record lows. As its commercial segment continues to drive revenue growth, it could stage a comeback as enterprises look for help in bolstering their businesses.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy has positions in Palantir Technologies Inc. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Palantir Technologies Inc. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.