Three potential AI-focused software companies worth contemplating for investment.
Title: Riding the Wave of AI Software: three stocks poised for success
In the ever-evolving landscape of artificial intelligence (AI), the initial surge in revenue has primarily come from hardware giants like Nvidia. However, with organizations slowly but surely integrating AI into their operations, the next big wave might just come from the software sector. Let's dive into three stocks that could emerge as victors in this AI software boom.
1. Palantir Technologies (PLTR): The Operational System of AI
While AI model development is grabbing headlines, Palantir Technologies is taking a different approach. Focusing on the operational layer of AI, it aims to create an AI operational system for organizations. By connecting data sets and AI models to real-world counterparts, the company can help customers solve meaningful problems and improve efficiency.
Palantir's approach of AI workshops, or boot camps, showcases how its platform addresses potential use cases while aiding with training. This strategy has led to a surge in U.S. commercial customers and revenue for the company. The next growth driver for Palantir will be transitioning these commercial customers from proof-of-concept into production, which could propel their success even further. Additionally, with the U.S. government, a significant client for Palantir, embracing AI, the company's growth prospects appear promising.
However, the stock is expensive, with a P/S multiple of 41 times 2025 analyst estimates. This leaves little room for error, as the stock currently trades at premium price points compared to its SaaS counterparts.
2. Microsoft (MSFT): The AI Copilot Pioneer
One of the first large tech companies to embrace AI was Microsoft. Their cloud computing unit, Azure, has benefited from the surge in AI model creation, while their software business stands to gain from platforms that assist developers, like GitHub's AI Copilot. With the Microsoft 365 Copilots, employees can prioritize and summarize emails, manage tasks, and share documents, streamlining workflows and creating new efficiencies.
While the stock appears reasonably valued with a forward P/E of under 33 times this fiscal year's analyst estimates, the company has many growth opportunities ahead, particularly within departments that look to adopt emerging technologies.
3. AppLovin (APP): The AdTech Powerhouse
AppLovin's fortunes underwent a significant change with the launch of its AI-powered adtech solution Axon-2, which has since become popular among gaming app companies. By employing predictive machine learning, the platform helps customers better monetize and target users.
Since the launch of Axon-2, AppLovin has witnessed a dramatic increase in software platform revenue, with a segment seeing 66% revenue growth to $835 million in the last quarter. The company's gross margins have also expanded, indicating improved profitability. Looking ahead, AppLovin is targeting steady growth of 20% to 30% in software platform revenue from gaming clients through continuous learning and market expansion.
However, the stock's forward P/E is elevated at 40.5 times 2025 analyst estimates, a sign that the market expects strong growth from the company in the coming years.
Sources:
- Enrichment Data - Palantir Technologies (PLTR)
- Enrichment Data - Microsoft (MSFT)
- Enrichment Data - AppLovin (APP)
- The integration of AI into financial operations could provide a significant boost for Palantir Technologies, as their operational AI system could help increase efficiency and solve complex financial problems.
- With the increasing popularity of AI in the tech industry, Microsoft's GitHub platform with AI Copilot is poised to revolutionize software development, offering new opportunities for investors interested in the finance and investing sector.
- Palantir's financial success has been driven in part by its focus on AI workshops, helping potential clients understand the potential of their platform and providing value beyond traditional proof-of-concept demonstrations.
- AppLovin's AI-powered adtech solution Axon-2 has skyrocketed the company's software platform revenue, demonstrating the potential of AI to drive growth in the finance and tech sectors, including investing in cutting-edge AI companies like Palantir, Microsoft, and AppLovin.
