Investors continue to rush into AI’s potential trillion-dollar opportunity, but some caution is due as some AI stocks over-inflate amidst competition from tech giants. Indeed, the valuations of many AI stocks now carry prices in years and years of growth. Thus, even if this opportunity materializes, it’s unclear how much upside will be left for those who get in at these levels. This is not the case with AI stocks wit huge potential.
Accordingly, many investors may be looking for AI stocks to sell rather than buy right now. That sentiment is understandable.
However, for those itching to get into this sector, there are certainly plenty of AI stocks with the potential to double. If this market mania continues, anything is possible, but these three companies certainly have the best shot of doubling from here amid broadly bullish sentiment.
So here are AI stocks with huge potential.
Upstart Holdings (UPST)
Given the relatively short lifespan of Upstart (NASDAQ:UPST), it’s incredible to see a number of dramatic surges and falls in a two-year period.
Upstart surged during the previous post-pandemic mania, reaching an astronomical valuation, as investors piled into hyper-growth stocks in a big way. At the time, AI was viewed as a massive growth catalyst, but optimism was far more widespread. Following last year’s decline, 2023 has brought about a fresh wave of optimism around the AI sector specifically, benefiting Upstart.
The company’s AI-driven model used for credit scoring has turned the industry on its head. The company has collaborated with over 99 banks, serving 2.6 million customers, and originating $32 billion in loans. With AI-driven models, it approves as many loans with a 53% lower default rate than competitors.
Upstart Holdings, valued at $4.5 billion, has the potential to challenge incumbents like Experian, Fair Isaac, TransUnion, and Equifax, collectively valued at nearly $100 billion. I’m bullish on this stock over the long term, and think its valuation could easily double if bullish market conditions return.
International Business Machines (IBM)
For a budget-friendly AI investment, consider IBM (NYSE:IBM), less exciting than Nvidia (NASDAQ:NVDA), but intriguing. Despite minor gains since January, the semiconductor manufacturer’s forward multiple of 15.2-times earnings is a discount compared to competitors, ranking better than 75.07%. Additionally, its free cash flow ratio at 12.95 times outperforms the sector median of 24.95x.
IBM aims to overcome challenges in quantum computing by focusing on error correction, leading to a 100,000 qubit quantum computer for practical applications like Shor’s algorithm. Of course, the chips space is all about innovation and R&D. In this regard, Intel has lagged behind. But under Pat Gelsinger’s watch, it looks like this could be changing. And if investors buy into the story, this is a stock with big double-up potential. This makes it one of those AI stocks with huge potential.
While IBM is a player in quantum computing, its stock’s short-term movement is driven by its broader business. This stability sets it apart in the quantum computing sector. Amidst an early quantum stage, financially strong companies like IBM are likely to excel. Q2 2023 revenue and net income matched Q2 2022, showing consistency in a volatile industry. IBM’s resilience could make it a top quantum computing stock choice.
C3.ai (AI)
C3.ai (NYSE:AI) is a rising star in enterprise AI software, attracting forward-looking investors with a prestigious client base. Serving government, industrial, and energy sectors, its prospects seem promising. However, concerns arise as 30% of revenue depends on a partnership with Baker Hughes, set to expire soon. Furthermore, a switch to usage-based fees could disrupt short-term revenue, compounded by competition from major cloud platforms.
The company’s recent earnings results were impressive. C3.ai brought in$72.4 million in total revenue, 79% from subscriptions, highlighting strong demand where it matters. Additionally, the U.S. Air Force adopted their PANDA AI tool for enhanced predictive maintenance, reducing downtime, and improving aircraft availability.
Despite the hype around AI and valuation surges across this sector, C3.ai’s financials will continue to face investor scrutiny. Revenue growth is strong, but profitability fluctuates. The company’s earnings per share loss widened from -$0.83 to -$2.45 in fiscal year 2023. Additionally, many customer opportunities remain in the pilot stages. A June selloff brought shares below the year-to-date peak.
Thus, investors considering C3.ai’s potential may see this as a strategic entry point for a potential double-up. Just be warned, such a bet doesn’t come without risk.
On the date of publication, Chris MacDonald 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.
