Every day, people breathe, eat, sleep… and invariably check their mobile apps.
A recent Pew Research poll reveals that more than 80% of Americans own a smartphone. And according to eMarketer, those with smartphones spend more than two and a half hours daily on mobile apps.
This trend signifies our society’s deepening app addiction, a phenomenon prevalent not only among individuals but also in businesses. Research from Okta, for instance, indicates that the average large firm’s workforce uses 129 software apps.
This number is set to increase dramatically in the coming years, primarily because of advancements in artificial intelligence (AI).
AI is a significant technological leap… one that is poised to become the ultimate competitive advantage in the business world. Companies that successfully integrate AI into their operations are likely to dominate, while those that do not adapt will struggle significantly.
In the next few years, every company will rush to incorporate AI apps into their business… or develop AI their own.
These apps, potentially numbering up to 500 per business (or other large enterprise, such as a university), will handle tasks such as document creation, data analysis, workflow automation, research, presentation crafting, mock product development, and automated marketing campaigns.
We are on the cusp of the AI App Economy, where creating and deploying AI apps will be crucial for survival in the business landscape. However, app development is a complex task that requires substantial coding skills. Adding AI to the mix intensifies this challenge, especially for businesses outside of the major tech giants.
In this burgeoning AI App Economy, there is a significant gap between the market’s trajectory and the tools necessary for its advancement. Several companies are poised to become leaders in this explosive AI market.
Today’s report will highlight five AI software stocks to buy. These companies, at the forefront of AI software development, are likely to become long-term market winners.
Let’s take a look…
AI Software Stock to Buy No. 1
Palantir (PLTR)
Market Capitalization: $48.5 billion
Palantir Technologies Inc. (PLTR) is data science firm that is pioneering an AI-powered approach to data analytics. It’s an approach that the company hopes will one day be standardized across the industry.
Palantir got its start in 2003 to develop advanced software for the U.S. intelligence community’s counterterrorism investigations and operations. That technology is world-class.
Since 2003, Palantir has grown this government-focused data science platform by leaps and bounds. Today, its platform is considered the “gold standard” in government data analytics and has been used to power emergency noncombatant evacuation operations from Afghanistan; power the U.S. vaccines program; help identify a $200 billion Russian money-laundering operation; and fuel the Public Safety Power Shutoff program to mitigate wildfire risks.
Now Palantir is further commercializing that technology by expanding into Corporate America. Thus far, those expansions have been wildly successful. Commercial revenues have been growing in excess of 15% for the past several years.
The Denver-based company plans to continue to rapidly scale its government and commercial businesses via new customers, new product launches, and higher fees. Behind that growth engine, Palantir’s management team expects to grow commercial revenues in excess of 3,015% per year over the next few years.
Our bull thesis on Palantir in the AI App Economy boils down to three simple things:
- Data is the most valuable asset in the world.
- AI applied to data will unlock huge economic advantages for governments and companies.
- Palantir is the best in the world at applying AI to data.
We believe Palantir is still in the early stages of discovering its true value proposition, much like Microsoft Corp. (MSFT) was in the 1980s and ’90s.
In the early days of Microsoft Office, folks thought that programs like Word and Excel would be niche office productivity tools. A few decades later, they are in near-constant use, installed on basically every computer in the world.
Similarly, in the early days of Palantir, a lot of people thought of its data science platform as a niche productivity tool. But we think that, in 10 to 20 years, simplified versions of Palantir’s software could be installed on every computer, putting AI in the hands of every consumer in the world.
Palantir is unequivocally one of the top AI stocks to buy for the next several years.
AI Software Stock to Buy No. 2
AppFolio (APPF)
Market Cap: $7.7 billion
AppFolio (APPF) provides cloud-based solutions primarily targeted at the property management and legal industries. It’s a high-value tech offering in a huge market.
Its core software is designed to assist property managers and real estate professionals in managing properties. It features tenant and lease management, accounting, financial tracking, maintenance requests, online rent payment processing, and tenant communication.
AppFolio, which currently assists with about 7 million rental units, has a long growth runway ahead. Given the estimated 51 million rental units in the U.S., there is substantial room for AppFolio to expand. Moreover, with average revenue per user (ARPU) rates ranging from $20 to $110, the firm has immense growth potential through both customer and ARPU growth.
AppFolio’s massive AI potential is another key growth driver. Leveraging AI, the company can offer advanced property management solutions like AI-powered tenant background checks, pricing schematics, and equipment monitoring. This innovation is expected to significantly increase ARPU in the coming years.
Additionally, AppFolio is poised to benefit greatly from the current “rental rush.” Soaring mortgage rates are pricing potential homebuyers out of the market, turning them toward rentals. This trend, combined with new apartment builds hitting multidecade highs, expands AppFolio’s addressable market.
AppFolio’s long-term growth profile is impressive. The company has maintained a 30% compounded annual growth rate in revenues over the past several years. Wall Street estimates suggest it will sustain 20%-plus revenue growth for the next five years, followed by 15%-plus growth thereafter.
This positions AppFolio as a hypergrowth firm. Further, it has a solid margin profile with huge scalability. Operating at approximately 60% gross margins, with around 10% EBITDA margins and free cash flow margins, AppFolio’s scalable software-as-a-service business model promises significant margin growth through economies of scale. This scalability implies that 20%-plus revenue growth could translate into 30% to 40% profit growth in the coming years.
AI Software Stock to Buy No. 3
Duolingo (DUOL)
Market Cap: $8.4 billion
Duolingo Inc. (DUOL) is an education platform that has figured out how to gamify and digitize foreign language courses so that it al can be done from an app — at no cost to the learner — in a fun, engaging, social, and convenient way.
The company offers 100-plus total courses across more than 40 languages, and each one of those courses
- Is hyper-personalized
- Progresses at the pace of the individual user
- Includes games, tournaments, and friend challenges
- Has a cute little bird mascot that helps you out
- And runs entirely through an on-demand app so that you learn wherever you want, whenever you want
Duolingo makes learning a language as fun as humanly possible. Everyone on our team has tried the app — and loves it.
But don’t take my word for it. Download the app and see for yourself. There’s a reason the app has a 4.7-star rating across 1.4 million reviews in the App Store.
OK, that Duolingo has figured out how to make learning a language fun is great for customers.
But what’s the bull thesis here? Where’s the upside for the stock?
To answer that, let me give you a number: 80%.
That’s how many Duolingo users in the U.S. were not already learning a language when they began using the app. These are people who were interested in learning a foreign language — but never had the time or money to do so — downloaded the Duolingo app, and got hooked.
That’s the grand majority of the users on Duolingo.
In other words, Duolingo isn’t just taking over the foreign language education market by making the process more fun and accessible. The company is growing the market by 4X!
Now, that’s a big deal because, as it currently stands, the language-learning market is a big one. It measures about $60 billion. Duolingo, then, is essentially creating a new market that could one day be worth upward of $240 billion.
And yet, Duolingo’s market cap today is just $9.7 billion. That delta implies a huge opportunity for the company. And management is capitalizing on it with flawless execution.
The company is growing at lightspeed. And this growth isn’t anything new. Duolingo has been steadily growing its user base throughout its entire business life.
Duolingo claims over 500 million registered users, 74.1 million monthly active users, and 21.4 million daily active users.
We believe that Duolingo has the potential to be a $50-plus billion ed-tech giant in the future.
AI Software Stock to Buy No. 4
UiPath (PATH)
Market Cap: $11.1 billion
Our long-term outlook on UiPath Inc. (PATH), a front-runner in the Automation Revolution, is exceedingly positive. As a leading innovator in enterprise software automation, UiPath is redefining business processes with its AI-powered software robots, making it an absolutely mouthwatering investment proposition.
At its core, UiPath is equipping corporations and other large enterprises with AI-based computer vision capable of automating an extensive range of tasks. That includes logging into applications, extracting document data, moving folders, completing forms, and updating databases. These software robots, continuously learn and adapt from worker actions, optimize workflows, and complete tasks faster and more efficiently than us humans.
The New York-based company’s core platform constitutes an army of these robots that perform a vast array of business processes that, until recently, required a person’s “touch.”
As of January 2024, the company claims 10,830 customers and about $1.38 billion in annual recurring revenue.
UiPath’s transformative approach to software automation is fueling the “Future of Work.” Considering that data can model most human actions (and, therefore, AI algorithms can understand human behavior), it’s extremely likely that such software will eventually automate virtually all human workflows. While full automation with robots is still a distant reality, AI and automation software have begun to permeate the modern office.
Consider how robots and AI software are automating:
- Content creation and advertising
- Checkout processes in supermarkets and other retail
- Food preparation
- And the management of fulfillment centers.
The Automation Revolution is here, and UiPath is providing the essential tools for this transformation.
What’s more, UiPath is leading the charge in the deglobalization trend — often called “reshoring” — in which Western businesses are moving some factories and other facilities back to Europe and North America. In a nutshell, localization requires companies to find ways to lower local production costs.
U.S. companies initially globalized due to cheaper labor in Asia. If they localize production without cost-saving measures, their expenses will increase, and profits will suffer. As a result, the trend against globalization will likely involve automated localization, where companies focus on local production with automated labor to eliminate associated labor costs. This makes automated localization the only feasible way for companies to deglobalize cost effectively.
Industry analysts expect the demand for and investment in hardware and software that automates business processes to significantly increase in 2023 and beyond. UiPath, a leader in software-driven automation, has been recognized by Gartner as a top player in the robotic process automation industry for three consecutive years.
The company is already experiencing rapid growth, with trailing 12-month revenues showing 65% compounded annual growth over the past seven quarters.
UiPath’s business model is highly profitable, boasting 85% or higher gross margins, which allows for scalability and substantial profit generation. The stock is currently undervalued, trading at just 7X price-to-book, despite having a 30%-plus revenue growth potential in the coming years.
Bottom line: UiPath is one of our favorite long-term growth companies in the world today. It is the market’s highest-quality pure play on labor automation, a trend we believe is both powerful and inevitable. And the power and inevitability of that trend will only be exacerbated by deglobalization rhetoric.
Therefore, we think UiPath stock is a long-term winner with a big near-term catalyst. And that’s a powerful combination.
AI Software Stock to Buy No. 5
Samsara (IOT)
Market Cap: $16.75 billion
Take one look around you and you’ll understand that the world’s digital transformation is in full swing.
In the retail industry, long gone are the days of brick-and-mortar shopping and cash transactions. Today, we use payment cards and digital wallets, and shop online for nearly everything.
Meanwhile, paper advertising is a relic of the past. As are cable TV and radio. Today, we watch movies on Netflix, listen to songs on Spotify, and are fed ads on Facebook and Instagram feeds.
At the office, you won’t find a fax machine. Printers are few and far between. As is paper. Same with pens.
Instead, on every desk, you’ll find a computer, and in every conference room, you’ll find a video teleconferencing machine.
Across most industries, technology is reshaping how we do things.
Except for one set of industries: The so-called “physical operations” industries, which include transportation, wholesale and retail trade, construction, field services, logistics, utilities, etc.
These industries are huge. Collectively, they make up around 40% of the world’s GDP. They’re also necessary. They power our homes, transport our goods, and build our offices.
Yet, they are massively underserved by technology.
That’s because these industries cannot be digitized. They’re rooted in physical operations and, therefore, are much harder to modernize. Indeed, to digitally transform these industries with data and analytics, you’d need to outfit every construction truck, delivery car, and pipeline with a tracker – which, for years, has been prohibitively expensive.
But that’s all changing.
Thanks to the falling costs of sensors, we’ve seen a proliferation of Internet of Things (IoT) devices across the industrial world over the past few years. These IoT devices are producing a ton of data, which sets the stage for these industries to finally embrace their digital transformations in the 2020s.
They’re going to do just that, because digital transformation – as evidenced in the retail, advertising, media, and IT industries – results in higher productivity, lower costs, increased convenience, and more efficient operations.
What comes next is the long overdue $100 BILLION digital transformation of the world’s physical industries.
And one company that’s going to help them do that — the company we’re talking about here –is Samsara Inc. (IOT).
Samsara is an industrial modernization company that is pioneering a suite of cloud-connected solutions to help industrial companies in the transportation, utilities, construction, and engineering industries digitize, streamline, and automate their workflows.
The company started out in 2016 with a core vehicle telematics platform that essentially attached trackers and sensors to fleet vehicles so as to provide real-time, to-the-second GPS tracking and data. That enabled a whole suite of analytics to help transportation companies optimize their fleets.
The solution was an immediate hit. From there, the company expanded into video safety, driver workflow, and equipment monitoring solutions 2018.
In the video safety world, Samsara outfits vehicles with dash cameras that record driving incidences and provide the collected data to fleet operators. Then there’s the Driver App, a personal assistant for fleet drivers and workers that digitizes all of their workflows. For equipment monitoring, Samsara outfits industrial assets with smart trackers that enable asset utilization data.
Samsara offers each solution as a standalone product. But the company also ties each of these solutions into a unified Connected Operations Cloud, which helps industrial companies modernize all of their operations. About 89% of the company’s large customers opt for the Connected Operations Cloud.
The company counts over 19,000 customers across the globe, with most of those customers centered in the U.S. And in Q1 of fiscal 2024, annually recurring revenues clocked in at over $1 billion, up 48% year-over-year.
The business operates on a software-based business model that now yields 70%-plus gross margins.
We’re big believers in industrial modernization. Digital transformation doesn’t apply to just a handful of industries. Its benefits are ubiquitous, and every industry will eventually embrace digital transformation – once the underlying technology allows for it.
We are finally at that point in the industrial world, thanks to the falling costs of IoT sensors. Industrial digital transformation will be a huge investment theme of the 2020s. Samsara is positioned at the epicenter of this theme.
The company’s founders are impressive. They met while earning their Master’s in Computer Science at MIT. Upon graduating from MIT, they founded a Wi-Fi company by the name of Meraki, which was subsequently bought out by Cisco Systems Inc. (CSCO) and today is the basis for that company’s cloud business. In 2015, they left Cisco to found Samsara.
The impressive pedigree extends to the employee base. Samsara counts about 100 employees with degrees from Caltech, MIT, Stanford, Harvard, and Oxford – widely considered the world’s top tech schools.
The company is growing quickly, with a huge runway in front of it. This feels like a company that can rattle off 20%-plus revenue growth for a decade or more.
The more we dig into Samsara, the more we like it. The business is solid. The opportunity is huge. The business model is scalable. The competitive moat is wide. The team is excellent.
The only hiccup? The valuation. But if management knocks it out of the ballpark, that won’t matter in the long run. That’s why Samsara stock deserves to be on your radar today.
The Final Word
By now, we all know that software is a great way to play the AI Revolution. AI software stocks blend an emerging technological phenomenon (and, therefore, explosive sales growth) with hyperscalable business models (explosive profit growth).
AI software stocks are fantastic investments right now.
The only problem? Most people already know about the best AI software stocks, so the money has already flooded into them.
We all know about Microsoft and Alphabet (GOOGL), and C3.ai (AI). We all know about ServiceNow (NOW), Salesforce (CRM), Datadog (DDOG), and more.
These are well-known, popular, and crowded stocks.
But there are still hidden gems in the market — lesser-known AI software companies that are innovating and growing rapidly — that haven’t caught the market’s full attention.
Our report delves into these under-the-radar AI software stocks, identifying those with the potential for high growth and scalability.
By focusing on these emerging players, investors can tap into the AI Revolution’s next wave before these stocks become mainstream.
In today’s rapidly evolving AI landscape, being ahead of the curve is key. The companies we spotlight have the technology, vision, and market position to potentially outperform their larger counterparts in the long run. These stocks might not be household names yet, but they hold the potential to be major players in the AI App Economy.
So, join us as we continue to cover these promising AI software stocks, offering unique opportunities for growth and innovation in an increasingly AI-driven world…
The future of AI is not just about the big players, but also about these dynamic and agile companies that are ready to make a significant impact.
Welcome to Hypergrowth Investor – our free daily email newsletter!
With our next-generation approach to investing, every day of the week, we’ll bring you better stocks and cryptos for you to invest in — not the same old companies overhyped on Wall Street. You can always access our complete archive of issues here and our many other free special research reports here.
