Artificial intelligence (AI) stocks continue to gain traction among growth investors. Rather than electronic gadgets and robots, AI technology is primarily based on complex algorithms and software that allow individuals and companies to make smarter decisions.
We are most likely to see AI these days in social media, search engines, e-commerce sites as well as many enterprise applications. The demand for AI products and services continues to surge, while the technology keeps transforming every walk of life. Therefore, today I’ll discuss three stocks that have devised innovative uses of AI in their operations.
Metrics by Research and Markets forecasts the AI industry to grow at a compound annual growth rate (CAGR) of over 28% and reach $171 billion over the next three years. On the other hand, another report by Grand View Research indicates that from 2021 to 2028, the global AI market is expected to grow at a CAGR of more than 40%.
There are several ways for growth investors to take advantage of the booming AI trend. While investors might invest in chip companies, such as Nvidia (NASDAQ:NVDA), that manufacture the semiconductors required for AI applications, investing in companies that rely heavily on AI could be another option.
With that information, here is a list of three AI stocks that offer significant upside potential in the coming months:
AI Stocks: C3Ai (AI)
52-week range: $42.70 – $183.90
C3.ai is an enterprise AI company. It provides software-as-a-service (SaaS) applications that allow customers to develop large-scale Enterprise AI applications across any infrastructure.
C3ai released Q1 Fiscal 2022 results on Sept. 1. Revenue increased 29% year-over-year (YOY) to $52.4 million. Non-GAAP loss from operations came in at $21.8 million, compared to a loss of $1 million in the prior quarter. Cash and equivalents ended the quarter at $274 million.
On the results, CEO Thomas M. Siebel cited, “We significantly expanded our market-partner ecosystem in Q1, entering into a strategic alliance with Google Cloud to allow the entire Google Cloud global sales and service organization to co-sell and service the entire family of C3 AI applications.”
As C3.ai allows companies in various sectors to take advantage of custom AI solutions, new customers keep coming in at a rapid pace. Prominent customers include such as Alphabet’s Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Royal Dutch Shell (NYSE:RDS.A, NYSE:RDS.B).
The oil and gas industry currently accounts for around 35% of total revenue. C3.ai has developed a new suite of AI tools for Baker Hughes (NYSE:BKR), which helps oil companies decrease carbon emissions and increase overall efficiency.
While C3.ai isn’t yet profitable, it boasts a hefty 75% gross margin. The company estimates second-quarter revenue growth to come in at 37% YOY.
Given significant top-line growth and a growing addressable market, the current stock price presents an attractive opportunity to buy AI shares at a reasonable valuation. AI stock currently hovers just below $49, down 70% from its all-time high (ATH) in late 2020. It’s down 65% year-to-date (YTD). Shares are trading at 26x trailing sales.
AI: Splunk (SPLK)
52-week range: $110.28 – $214.00
Splunk is well-known for its software designed for machine log analysis. Its flagship solution, Splunk Enterprise, is employed across various use cases, including application management, information technology (IT) operations, and security.
Splunk released Q2 Fiscal 2022 results in late August. Revenue increased 23% YOY to $606 million. Net loss came in at $384 million, or $2.34 loss per diluted share, compared to a net loss of $261 million, or $1.64 loss per diluted share, in the prior-year quarter. Cash and equivalents ended the quarter at $2.2 billion.
Following the announcement, CEO Doug Merritt cited, “Our team delivered another strong quarter, validating the high strategic value we deliver to the world’s largest and most dynamic organizations. We doubled the number of customers with Cloud ARR of $1 million dollars or more as workloads and data continue to shift to cloud.”
Splunk focuses on data analysis to generate insights for its clients. Splunk’s platform can analyze high volumes of complex data and allow enterprises to take action against possible pitfalls before they happen. AI and machine learning remain at the heart of Splunk’s future.
The cloud has made Splunk’s products and services even more accessible. Its share in Splunk’s total revenue has soared to almost a quarter in fiscal 2021. Going forward, the cloud is expected to boost top-line and bottom-line growth. Splunk has recently added cybersecurity services to its cloud offerings.
SPLK stock currently hovers at $165, down 22% from an ATH last year. It’s has also lost 2% YTD. The dip in the stock price offers long-term investors an opportunity to buy the company at a reasonable valuation. Shares are trading at 11x trailing sales.
AI: UiPath (PATH)
52-week range: $47.20 – $90.00
UiPath went public in April 2021. The company creates an end-to-end automation platform. UiPath’s software robots use AI to automate repetitive tasks within an enterprise, from simple tasks to long-running, complex business processes.
UiPath released Q2 Fiscal 2022 results on Sept. 7. Total revenue went up by 40% YOY to $196 million. Net loss came in at $100 million, or 19 cents per diluted share. The company generated adjusted free cash flow of $3.5 million. Cash and marketable securities ended the quarter at $1.9 billion.
CEO Daniel Dines remarked, “Our results were driven by both new customer additions, ending the quarter with more than 9,100 customers, as well as robust expansion with existing customers, reflected in our best-in-class dollar-based net retention rate of 144 percent.”
UiPath aims to fully automate business processes or workflows within an enterprise, which helps increase efficiency and productivity in any business environment.
The company also utilizes computer vision and machine learning, allowing software bots to make complex decisions and learn from human behavior. UiPath has 9,100 customers, including over 60% of the Fortune 500 companies.
PATH stock hovers at $57, around 40% lower than its high in late May. Despite a 22% drop over the past six months, PATH shares don’t look cheap, trading at 38x trailing sales. However, UiPath is expected to grow into its current valuation, thanks to its rapid top-line growth and high retention rate.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.