After a very sluggish start to 2024, the stock market has finally been gaining some upward momentum lately. But while strong fourth-quarter earnings results have lit a fire under some stocks, spiking Treasury yields are keeping the market rally rather narrow.
Large-cap tech stocks are surging higher right now, while nearly everything else is struggling.
But we still think that a major shift is underway for the stock market.
The gap between large-cap and small- and mid-cap tech stocks has grown unprecedentedly wide. By and large, Big Tech stocks are technically overextended and fundamentally overvalued, while small- and mid-cap stocks are technically and fundamentally oversold.
That means that with the right mix of catalysts, we could be due for a sharp “snapback” trade in small- and mid-cap stocks.
We believe those catalysts will soon arrive.
Firstly, Treasury yields will likely stop spiking. In the last two months of 2023, Treasury yields plunged, and during that time, the stock market rally was very broad. In fact, small-cap stocks staged one of their sharpest-ever rallies during that time. Point being: Falling yields really help small- and mid-cap stocks.
And importantly, inflationary pressures are now rapidly receding, most recently evidenced by today’s S&P Global Composite purchasing managers’ index (PMI) report. That data showed that in January 2024, companies across the U.S. raised their selling prices at the slowest rate since May 2020.
To be sure, that same report showed that U.S. economic activity jumped to a seven-month high in January. Sustained strong economic activity will keep yields from crashing. But receding inflationary pressures should push yields lower in the coming weeks and months, which will help reinvigorate strength in small- and mid-cap stocks.
Additionally, we believe that most firms will report strong earnings this season. Stocks like Netflix (NFLX), ASML (ASML), Taiwan Semiconductor (TSM), and others have soared over in recent weeks thanks to their robust earnings. And we’re confident they won’t be alone.
We believe the improving economic data suggests that most companies – not just Big Tech firms – will report good earnings this season. While the market has endured some macroeconomic unevenness, the economy is now broadly improving in a manner that supports strong small- and mid-cap earnings, too.
In fact, we fully expect this to be the first super-strong earnings season for small- and mid-cap firms since 2021. If so, then the valuation discount in small- and mid-cap stocks should dwindle in the coming weeks. Earnings estimates for those firms should move higher, too. And that should create a powerful double tailwind for small- and mid-cap stocks.
That’s why we strongly believe that over the next few weeks and months, the stock market will continue to rally, and that rally will increasingly shift away from Big Tech and toward small- and mid-cap stocks – especially small- and mid-cap AI growth stocks.
Nevertheless, investors are at a severe disadvantage right now. How do you pick high-growth stocks on the rise without getting whacked by a risk-averse selloff?
The answer is deceptively simple…
Just consider how, over the past decade, the time and resources it takes for companies to grow and scale has shrunken dramatically. It’s inarguable, and it’s one of the biggest seismic shifts in human history, mostly because it means that investors can score enormous returns faster than ever before.
And at the root of this seismic shift toward fast tracking billion-dollar valuations is something we like to call “hyperscalability.”
Until recently, no one was really talking about hyperscale AI or how it will inevitably change the world. For most people, AI’s impact was limited to the mundane, like setting a timer with Siri or turning down a speaker’s volume using Amazon’s Alexa.
But that all changed in late November 2022, when something remarkable happened; something that we believe has set in motion a multi-trillion-dollar AI Revolution that will forever reshape every facet of the global economy – and our daily lives.
We’re talking about the launch of ChatGPT.
The purpose of ChatGPT? To create an AI that can do almost anything.
In just five days, ChatGPT amassed 1 million active users. In 40 days, it attracted 40 million users. In just two months, it surpassed 100 million active users. By comparison, it took TikTok – the most viral social media app yet – nine months (or 4.5X as long) to reach 100 million users.
Source: UBS/Yahoo Finance
ChatGPT is among the fastest-growing consumer technology applications of all time.
But its hyperscale rise is about so much more than just a buzzy conversational chatbot – it marks the tipping point of the AI Revolution.
Simply consider that ChatGPT launched in late November ’22. Afterward:
- Microsoft (MSFT) – OpenAI’s biggest investor – launched Copilot, its own AI-powered digital assistant that, according to Microsoft, “combines the power of large language models (LLMs) with your data in the Microsoft Graph…and the Microsoft 365 apps to turn your words into the most powerful productivity tool on the planet.”
- Tesla (TSLA) developed its own supercomputer, dubbed Dojo, to power its AI specialized in full self-driving. And as Forbes noted, “Dojo provides Tesla with the kind of control that can lead to accelerated development cycles, thereby fast-tracking innovations in autonomous vehicles and possibly other domains of AI including the computer vision-powered robots Tesla is working on.”
- The Brookings Institution noted the global concern surrounding elections in the age of AI, concluding that, “If not better regulated, generative AI may disrupt contested information spaces and undermine democratic processes around the world in 2024.”
- Artificial intelligence is revolutionizing all industries and studies. Take archaeology. Among the artifacts found in Pompeii’s charred remains were 2,000-year-old scrolls; but they were too damaged to unroll and read. The BBC reported that “Youssef Nader, a PhD student in Berlin, Luke Farritor, a SpaceX intern and student, and Julian Schillinger, a Swiss Robotics student, built an AI model that was able to work out the lettering using pattern recognition.”
- Google search interest in artificial intelligence has soared to all-time highs, reaching levels about 10X where they were last year.
ChatGPT started a movement.
And it did so because of accessibility.
When it comes to major technological paradigm shifts, the world doesn’t truly recognize their value – and they don’t truly go mainstream and change the world – until they become accessible to the masses.
The World Wide Web was invented in 1989 and went public in 1993. Most Americans were online by 2005. But we weren’t really using the internet and taking full advantage of all it had to offer until 2007 – when Apple launched the iPhone.
That device put the power of the internet in the palms of our hands for $600. It made the internet accessible. It unlocked a whole new degree of freedom and flexibility to experiment with the internet, learn about it, understand its value, and discover how to leverage it in beneficial ways.
Over the next decade, thousands of apps were created and launched, across billions of phones, creating an entire Digital Economy that is now worth trillions of dollars.
And it all started with the iPhone – the internet’s first truly accessible technology.
By being the internet’s first truly accessible technology, the iPhone injected steroids into the already powerful Internet Revolution.
And right now, history is repeating itself right before our very eyes.
Before ChatGPT, sophisticated AI was merely a science fiction concept, one that venture capitalist investors were throwing money at and Silicon Valley engineers were working on in labs. It wasn’t accessible to Main Street.
Sure, we had Siri on our iPhones, and maybe Alexa and Google Assistant in our homes. But let’s face it; those were pretty “dumb AI.” They weren’t blow-you-away AI. They didn’t start an AI frenzy on Main Street and Wall Street.
They weren’t ChatGPT.
We are presently witnessing the iPhone moment for AI.
And that’s pretty exciting because while the internet revolution was big, the AI Revolution will be much, much bigger.
As I like to say, the internet revolution made millionaires out of investors and billionaires out of entrepreneurs. The AI Revolution will likely make billionaires out of investors and trillionaires out of entrepreneurs.
It will take the magnitude of wealth-creation potential to a whole new level.
The “Age of AI” has arrived. So has the time to invest in the next generation of superstar stock winners.
About once a decade, a new technological paradigm shift emerges and forever changes the world.
In the 1990s, we had the internet boom. In the 2000s, it was the smartphone. In the 2010s, it was the cloud.
Now, in the 2020s, it is artificial intelligence’s time to reshape society.
And that means now is the time to buy the market’s top AI stocks.
Over the next decade, artificial intelligence will change the world. As it does, the market’s top AI stocks will be fortune-makers.
These stocks will soar thousands of percent.
And today, you will find out about my top seven AI stocks to buy today. They’re the ones that I think have the best chance of being this decade’s fortune-makers.
Each company is thriving applying artificial intelligence to a certain industry, and each stock has the potential to soar 10X. Over the course of this report, we are going to dive deep into these stocks, one by one.
We recommend you strike while the AI iron is hot…
Palantir (PLTR)
Palantir (PLTR) is a revolutionary data science firm that is pioneering an AI-powered approach to data analytics, which 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. The technology the company has built to that is world-class.
Since 2003, Palantir has grown this government-focused data science platform by leaps and bounds. Today, Palantir’s 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. As the Wall Street Journal recently noted, “[Palantir’s] commercial revenue has roughly doubled in the past three years and now makes up around 45% of its overall sales.”
The Denver-based company plans to continue to rapidly scale its government and commercial businesses via new customers, new product launches, and higher fees.
Our bull thesis on Palantir in the Age of AI 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 (MSFT) 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 Palantir’s 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.
Symbotic (SYM)
Symbotic (SYM) is an AI-powered supply chain logistics company. It got started in 2006 with the purpose of developing next-generation technologies to improve operating efficiencies in modern warehouses.
Over the past 16 years, the company has worked tirelessly to perfect a full suite of AI and robotics technologies to fully automate any warehouse. Today, the company has realized that vision via a single autonomous warehouse system architecture that combines both software and hardware to automate basically every function of a warehouse.
To our knowledge, Symbotic is the only firm in the world that has created a fully autonomous, end-to-end warehouse system architecture that is in operation today.
The science and engineering behind the system is highly complex, but the process is very easy to understand.
Essentially, several robotic arms take inbound pallets at a distribution center and deconstruct them into individual items. Those items are placed on various mobile robots – called SymBots – which drive them to a temporary storage location at the distribution center. Subsequently, when those items are ready to be shipped to a store, the SymBots fetch and deliver them to another set of robotic arms, which construct a new outbound pallet to be delivered to the store.
The whole system is run by an AI software “brain” that informs where packages are stored, when they are fetched, and how pallets are constructed and deconstructed.
It is a single, highly complex solution for order fulfillment.
This system can be outfitted for distribution centers of any size. Typically, a Symbotic system has 400 intelligent robots and around five to 10 inbound and outbound cells. The whole system is powered by proprietary AI software and is protected by over 400 patents.
The technology is cool. Better than that, it works.
Two summers ago, Walmart (WMT) signed a deal to automate some of its distribution centers with Symbotic technology. Since then, a few of those distribution centers have been retrofitted with Symbotic tech, and they’ve achieved industry-best stock-keeping unit (SKU) counts.
In fact, Walmart was so impressed with the early results of Symbotic’s tech that, just last summer, it dramatically expanded the scope of the initial partnership to include all 42 of its regional distribution centers in America. In other words, every one of Walmart’s regional distribution centers in America will be automated by Symbotic tech by 2027.
Of course, that represents a huge vote of confidence in Symbotic tech. It also represents a massive ~$10 billion revenue contract for the Boston area-based company.
But Walmart is just the tip of the iceberg here.
C&S Wholesale Grocers – the largest U.S. wholesale grocery distributor – is also a big adopter of Symbotic tech and will likely make it a ubiquity by the late 2020s, too. Albertsons (ACI) – the world’s third-largest supermarket chain by revenue – has already integrated Symbotic tech into two of its distribution centers, with more orders on the way. And the distribution centers already live with Symbotic tech are reporting industry-best throughput.
Altogether, Symbotic has a massive order backlog that measures over $11 billion today, and it seems to be growing rapidly every single quarter.
But even that is still just the tip of the iceberg.
There are thousands of warehouses and distribution centers all over North America and Europe that could benefit from using Symbotic’s tech. After all, the estimated lifetime savings of this tech measures $250 million per module.
These cost savings are ubiquitously attractive to warehouse operators. Who doesn’t want to save $250 million per warehouse?
Meanwhile, Symbotic is the only company today with a proven technology platform that can verifiably drive those enormous cost savings. Plus, the company’s existing partnerships with Walmart, Albertsons, and C&S Wholesale Grocers give it ample runway to extend its market leadership in the coming years.
To that end, we believe it is highly likely that Symbotic successfully penetrates a significant portion of its estimated ~$400 billion total addressable market in North America and Europe, across the general merchandise, food and grocery, apparel, home improvement, auto parts, and third-party logistics (3PL) markets.
At just 5% market share, that implies $20 billion annual revenue potential for Symbotic. Management is targeting 25% earnings before interest, taxation, depreciation, and amortization (EBITDA) margins as the business scales. That combination means Symbotic has the potential to produce $5 billion in annual EBITDA within the next 10 years. A simple 20X multiple on that means this could be a $100 billion company within a decade.
The company is worth just $23.8 billion today.
The long-term upside potential is enormous, even under conservative assumptions. And, just as important, considering early validation of the transformative tech from Walmart, Albertsons, and more, the stock’s ability to realize its upside potential is high.
This is unequivocally one of the top AI stocks to buy for the next several years.
Opendoor (OPEN)
What do all of today’s Big Tech giants have in common? They disintermediated multi-hundred-billion-dollar economic systems with disruptive technologies that radically improved them.
For example…
- Amazon disintermediated retail by making shopping as easy as clicking a button on your phone.
- Alphabet disintermediated newspapers by giving folks access to all the information in the world through a simple search.
- Netflix disintermediated movie theaters by allowing people to watch blockbuster movies from the comfort of their own home for just $15 a month.
Successful disintermediation via disruptive technology is the blueprint for creating trillion-dollar tech empires.
Which do we believe is the next startup to follow this and turn into an enormous success? Opendoor (OPEN).
Fundamentally, Opendoor is leveraging AI and machine learning (ML) to take the human element out of the convoluted real estate process.
Opendoor is an iBuyer – a large company that buys your home from you through the internet. It then sits on that home for a period of time (usually a few months to a year) and sells it back into the market for a higher price.
The company makes its money in two ways.
- Opendoor charges a transaction to the seller during the initial home purchase.
- Then, the company profits from asset appreciation between when it first buys the home and when it “flips it” down the road.
Opendoor uses technology and data science to virtually buy homes from sellers. It then turns around and uses that same approach to sell those homes to prospective buyers.
We love this business model. We think it’s genius. It dramatically improves the archaic, universally hated home-buying model. Specifically, Opendoor’s AI technology makes the home-shopping experience:
Cheaper – It axes profit-taking middlemen (real estate agents) and replaces their often-flexible 6% commission with a 5% flat transaction fee.
Faster – Opendoor’s advanced data science methods accurately price a home in minutes. And sellers can close a sale in as few as three days.
Easier – Opendoor allows folks to literally sell their home from their mobile phone with a few clicks.
Simpler – It simplifies home selling into a unified process between just the seller and Opendoor. Say goodbye to disjointed and complicated sales between multiple parties.
More convenient – Opendoor allows sellers to choose their closing dates and escrow periods, enabling the flexibility to move on their own time.
More reliable – Its offers are all-cash. And its transactions never fall through because it “fails to qualify” – something that happens quite often in the home-selling process.
From a consumer advantage perspective, Opendoor is creating a superior way to buy and sell homes. It’s the future of home shopping. By 2030, we believe a large majority will use Opendoor to buy and sell homes. It’ll be much the same way shoppers today use Amazon to buy goods instead of going into Walmart (WMT) or Target (TGT).
To that end, we see Opendoor as an early-stage “Amazon of Houses.”
The reason we’re so excited about Opendoor stock is because this company makes the horrible but necessary home-selling process 10X better.
Long timelines? Forget those. You can sell a home in as few as 17 days. Opendoor gives you a preliminary estimate for your home in a matter of minutes (zero days). It follows up on that offer with a video walkthrough of your home in ~24 hours (one day). You receive a final offer from Opendoor ~24 hours after that (two days). Then you sign the contracts (two days) and choose your own closing date, between 14 and 90 days out (two days). You move into escrow (three days) and handle things with the title company (three to 16 days). And soon after, you close the sale of your home and receive the funds (17 days).
It’s superfast. We know from reading reviews online – and we also know from experience.
How about all those expenses? You can forget those, too! Opendoor charges a 5% selling fee, plus closing costs and repairs, and that’s it. No agent fees. No staging costs. No seller concession fees. All-in costs? Five percent and change, versus 10%-plus in the legacy process. And all of them are known – no hidden fees that pop up in negotiations all the time.
Opendoor also makes the home-selling process super simple, flexible, and reliable. By cutting out agents and middlemen, Opendoor creates a clear, easy, and transparent channel between the home seller (you) and buyer (Opendoor). And all that communication can happen digitally. No one even needs to step foot in your home.
You can also choose your closing date, anywhere between 14 and 90 days – no negotiating on escrow time. And after you close, you can still live in your home for up to a week for free (in case, say, you’re moving somewhere else that isn’t quite ready yet).
Oh, and Opendoor makes all-cash offers. There are no financing risks here. It’s as certain of an offer as you’ll find in real estate.
In other words, the company provides a 10X better way for you to sell your home.
Opendoor was founded as a tech company with tech roots. And it employs a tech-focused team that includes a lot of Block (SQ), Twitter (TWTR), Uber (UBER), and Google engineering alumni.
This exceptional talent has created superior pricing algorithms, allowing Opendoor to price homes more quickly and accurately than competitors. And to keep the whole process digital, these algorithms allow Opendoor to integrate streaming capabilities more masterfully into its home-evaluation process.
We view the company’s roots and talent as a durable competitive advantage.
After a few years of rate hikes, we’re of the belief that the Fed will remain dovish here and that, as a result, the housing market will stabilize on the back of falling mortgage rates. Operating under that assumption, Opendoor’s revenue growth should meaningfully accelerate into the end of 2023, gross and contribution margins should substantially improve, EBITDA should pop back into the black, and the company should become cash-flow positive once again.
Also, our channel checks suggest that Opendoor is doing great at the moment. Web traffic, app download, and search interest trends all look healthy. That’s why we believe now is a great time to buy this potential millionaire-maker stock.
Here’s the math to huge gains for OPEN….
About 6 million homes are sold annually in the U.S. We conservatively believe that, by 2030, Opendoor can nab around 5% U.S. housing market share. That implies that about 1 out of every 20 homes in the U.S. is sold through Opendoor by the end of the decade.
That equates to about 300,000 homes sold through Opendoor by 2030. At an average selling price of $350,000, you’re talking around $105 billion in annual revenues in 2030.
On a 5% EBITDA margin – management’s target, which we believe is entirely doable – that implies $5.3 billion in EBITDA. Taking out 1% for interest, some general and administrative expenses, and 20% for taxes, Opendoor should be left with $3 billion in net profit by 2030. Based on a typical 20X earnings multiple, you’re talking about a potential future valuation of $60 billion. And as it assumes just 5% market share, we think that’s conservative.
Nonetheless, that still implies more than 25X upside potential from current levels.
That’s why we see Opendoor stock as a no-brainer stock to buy today.
Braze (BRZE)
When startups go toe-to-toe with industry giants, they tend to lose.
But on the rare occasion when they do win, those startups end up changing the world and, in the process, score their early investors enormous returns.
When Netflix challenged Blockbuster in the 1990s, it was judged by many as a joke – especially by those at Blockbuster, who passed up the chance to buy Netflix in its early days. But, as we all know, Netflix bankrupted Blockbuster, redefined the global entertainment industry, and is now a multi-hundred-billion-dollar enterprise.
When Facebook challenged MySpace in the mid-2000s, it looked like a losing battle. But, as we all know, Facebook didn’t just dethrone MySpace – it sent the platform into the graveyard of irrelevancy. Along the way, Facebook built a multi-hundred-billion-dollar enterprise, too.
When Amazon challenged Sears in the 2010s, lots of folks thought Sears would eat Amazon’s lunch. But, of course, the opposite happened – and while Sears went bankrupt, Amazon built a trillion-dollar empire.
Startups challenge industry titans all the time. Most of the time, they lose. When they do happen to win, though, they win big – and so do the startup’s investors.
One startup with such takeover power is Braze (BRZE), a customer engagement software platform provider that operates in the world of helping direct-to-consumer brands more efficiently market to their customers, fans, and prospective buyers.
Specifically, the firm has built a cloud-based platform that helps brands process customer data in real time and orchestrate contextually relevant, cross-channel marketing campaigns. The platform is built to handle in- and out-of-product messaging while avoiding channel silos. This ensures that each action is taken with a comprehensive understanding of the unique customer relationship. For example, data from an initial customer engagement on Facebook can inform a brand on the optimal follow-up message to send via in-product push notifications.
The real-time and cross-channel features of the Braze platform are unique and highly differentiated from other marketing software platforms out there. They are built on top of the firm’s unique software development kit (SDK) and proprietary real-time data streaming architecture.
And this SDK is integrated directly with customer platforms and applications, which allows Braze to capture first-party user data generated through its customers’ platforms and applications, and can be used to make dynamic decisions. Also, because the SDK can be integrated across multiple channels, this unique integration process allows for cross-channel communication and marketing.
Clearly, there are quite a few reasons to be bullish on this stock. But a few have us especially excited about BRZE’s potential:
The AI industry remains the hottest part of the economy. There have been multiple positive business developments across the AI sector in early 2024 – including the launch of new AI PC chips from Nvidia (NVDA), which has sent that stock to all-time highs – which collectively underscore that the AI spending boom of 2023 will further strengthen in 2024. We continue to believe that we are in the early innings of a 10-year AI bull market and view every dip in AI stocks along the way as a great buying opportunity into long-term winners.
Braze runs a top-tier marketing software platform at a time when marketing spend should rebound strongly in 2024. Braze operates a marketing automation software platform that is widely regarded as one of the best cross-channel marketing automation tools out there, and it’s used by nearly all of the world’s top brands to market their products across a variety of digital channels. It is a top-notch platform. We think the platform will benefit tremendously in 2024 from a rebound in marketing spend on the back of resurgent consumer spending trends.
Braze has huge potential with AI. Braze has enormous potential to increase the efficacy and value proposition of its marketing automation software through the widespread integration of AI. There is a ton of data in the world of marketing. Every interaction, with every ad, in every channel, across every product, is tracked and logged. That creates a wealth of marketing data from which Braze can develop really smart AI algorithms to automate and optimize marketing campaigns. Braze is already doing this, and we think new AI products in 2024 will create huge upsell opportunities.
The stock looks primed for a big breakout. Braze stock is technically primed for a nice breakout here after it bounced off of some major support levels, with an improving RSI and a MACD that is about to execute a bullish crossover below the zero line. We think the stock looks technically very good here.
Mobileye (MBLY)
Mobileye (MBLY) is a global leading provider of advanced driver assistance systems (ADAS) and autonomous vehicle technology.
Founded in 1999, the Israeli firm established itself as the early leader in single camera-based vision systems for enhancing driver safety. Over the years, those cameras became widely recognized as the auto industry’s best ADAS solution, and dozens of automakers started buying and integrating them into their vehicles.
And now, unlike other autonomous vehicle (AV) startups, Mobileye has a proven commercial product that is already a near-ubiquity in the auto industry.
But Mobileye’s growth over the next several years won’t be driven by its monovision camera system. It already dominates the market. Instead, future growth will be driven by Mobileye’s expansion into full-suite self-driving packages with cameras, lidar, radar, and software.
This is where AI comes into play. Mobileye’s first chapter of growth centered on using sensors to create safer cars. Its second chapter of growth – which starts now – is all about using AI to turn those safer cars into self-driving cars.
Per our discussions with industry insiders, Mobileye is respected as a technical leader in full-stack self-driving solutions.
Its core technology capabilities – rooted in its success in vision-based systems – are impressive. And due to its previous partnership with Intel (INTC) – which it spun off of via an IPO in October 2022 – its AI software is considered very strong.
Our discussions are corroborated by third-party research from Guidehouse. Alongside Waymo, Cruise, and Baidu (BIDU), Guidehouse listed Mobileye as an autonomous vehicle industry leader in 2023 and called its strategy the best in the industry.
Mobileye already runs a big and profitable business, which means it can fund itself through the current macroeconomic environment.
That’s another huge competitive advantage for Mobileye. Most other self-driving tech firms are burning cash and, therefore, are reliant on outside capital. We see Mobileye as being in the best position of all self-driving firms to fund technological progress in the coming years.
That’s important because the total addressable market for Mobileye’s broad suite of AV technology solutions is huge. Management estimates its long-term total addressable market (TAM) at nearly $500 billion.
The company is already capitalizing on this opportunity and is growing its revenue pipeline for its next-gen ADAS systems to about $20 billion. We think Mobileye has clear visibility to grow revenues into the several billions-of-dollars-per-year range by the end of this decade.
Given its leadership in one of the largest emerging AI industries, MBLY is undoubtedly one of the top AI stocks to buy for the next several years.
Samsara (IOT)
Take one look around you, and you’ll understand that the world’s digital transformation is in full swing.
In the retail industry, gone are the days of brick-and-mortar shopping and cash transactions. Today, we use payment cards and digital wallets, and we 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 Meta and Instagram feeds.
At the office, you won’t find a fax machine. Printers are few and far between; so 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 comprise 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.
This is a result of the fact that these industries cannot be digitized. They’re rooted in physical operations, and therefore, are much harder to modernize. Indeed, in order 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 now.
Thanks to the falling costs of sensors, we’ve seen a proliferation of 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 there’s one company in particular that’s leading the charge toward this digital future.
We’re talking about Samsara (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, which essentially comprised attaching trackers and sensors to fleet vehicles so as to provide real-time, to-the-second GPS tracking and data – thereby enabling a whole suite of analytics to help fleet operators 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 data on those incidences to fleet operators. In its driver workflow segment, Samsara has created the Driver App which is essentially a personal digital assistant for fleet drivers and workers that digitizes all of their personal workflows. For equipment monitoring, Samsara is outfitting 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 cloud platform, dubbed the 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 currently counts over 13,000 customers across the globe, with most of those customers centered in the U.S. Revenues are expected to clock in around $920 million in fiscal 2024, representing 41% year-over-year growth..
The business operates on a software-based business model, which presently 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 therefore, every industry will 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 WiFi company by the name of Meraki, which was subsequently bought out by Cisco and today is the basis for Cisco’s cloud business. In 2015, they left Cisco to found Samsara.
Talented folks attract other talented folks. It’s no surprise, then, that Samsara’s entire exec team is very impressive. The CTO is a Mechanical Engineering grad from MIT with a Stanford MBA who has engineering experience at both Apple and Cisco. The Chief Product Officer also has engineering experience at both Apple and Cisco, with a Computer Science degree from Stanford. The Chief Revenue Officer was the VP of Sales at Cisco. The Chief Information Officer was the Chief Information Officer at Slack. The Chief Marketing Officer holds a Stanford MBA and was a marketing exec at Salesforce. This team is absolutely stacked.
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 very 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 dug into Samsara, the more we liked the company. 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.
UiPath (PATH)
Our long-term outlook on UiPath (PATH), a front-runner in the Automation Revolution, remains 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 an AI-based computer vision capable of automating an extensive range of tasks, including logging into applications, extracting document data, moving folders, completing forms, and updating databases. These software robots, continuously learning and adapting from worker actions, optimize workflows and complete tasks faster and more efficiently.
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 the third quarter of fiscal 2024, the company has more than 10,000 global customers and over $1.37 billion in annually 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 automated 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 platforms are automating content creation and advertising; checkout processes in retail are becoming automated; and robots are even preparing food and managing 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 anti-globalization trend, in which some Western businesses are moving some of their factories and other facilities back to Europe and North America. In a nutshell, localization requires companies to find ways to lower local production costs.
American companies initially globalized due to cheaper labor in Asia compared to the U.S. 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 2024 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 35% compounded annual growth from Q1 FY2022 to Q3 FY2024.
UiPath’s business model is highly profitable, boasting 85% gross margins, which allows for scalability and substantial profit generation. The stock is currently undervalued, trading at just 6.56 price/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 anti-globalization rhetoric.
Therefore, we think UiPath stock is a long-term winner with a big near-term catalyst. And that’s a powerful combination.
The Final Word
The AI revolution is in full swing now, and it’s only going to become more pronounced from here.
Artificial intelligence has been in use for years, but there were no widely applicable solutions until the introduction of ChatGPT.
OpenAI’s focused AI system has completely changed the game, showing the world what AI is capable of. It’s good. It’s really freakin’ good. But regardless of what headlines you may read online, ChatGPT is not gaining sentience and taking over the world … we’re still a long way from having true general AI, which is the kind of artificial intelligence you see in the movies.
General AI is the stuff we see in science fiction movies. Think Jarvis from Iron Man or HAL 9000 from 2001: A Space Odyssey. Those systems are cool, and they’re what we all think about when we think of artificial intelligence. Naturally, then, investors get excited when a company says it is making a general artificial intelligence system like those we’ve seen in movies.
But if you hear a firm make that pitch, run the other way.
Those are startups that will promise the moon but never deliver. They’ll be powered by investor “hopium” until they find themselves in the stock market graveyard.
Avoid those stocks.
Buy companies that have realistic goals and realistic pathways to huge success. Find the ones that are developing world-class narrow AI to do one thing very efficiently. Those are the stocks that will soar thousands of percent over the next few years and establish defensible monopolies in certain sectors of the global economy.
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