The era of artificial intelligence (AI) is upon us, and this new technology promises to unleash a new wave of creativity and convenience the likes of which has never been witnessed. AI offers an enticing promise to help automate tasks and achieve feats never accomplished by humans. Investors excited about AI's prospects and wish to ride on this long-term wave can seek growth stocks that utilize AI in their businesses.
By riding on the tailwinds of this trend, you can slowly but surely increase the value of your investment portfolio. The development of AI is in its infancy as there is so much more that can be done with this groundbreaking technology. Many companies are only starting to uncover AI's potential for a wide range of tasks, from defense and chatbots to assisting with queries and enabling deeper analysis and insights.
If you are looking for solid AI-related stocks to park your money in, consider the trio featured below.
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1. Palantir
Palantir (PLTR 4.65%) develops software platforms to enable comprehensive data analysis. Engineers are sent to the field to work closely with customers to help integrate their data and optimize workflows, resulting in increased efficiency and a better awareness of how the organization's data can be harnessed for useful insights.
The company released its AI platform (AIP) developed for industrial and military partners and applied it to customers in the commercial and government sectors. CEO Alex Karp is working with his management team to make Palantir's platform available to a broader range of organizations including overseas businesses, research scientists, and academic institutions.
The company's progress in growing can be seen in its recent financial numbers. For 2023, revenue increased by 17% year over year to $2.2 billion with U.S. commercial revenue climbing 36% year over year to $457 million. Palantir's free-cash-flow generation also more than tripled year over year to $697 million. The first quarter of 2024 saw revenue continue its upward climb, rising by 21% year over year to $634 million. The business generated its sixth consecutive quarter of net income at $106 million and continued to churn out positive free cash flow of $127 million.
In particular, U.S. commercial revenue grew 40% year over year to $150 million with Palantir's U.S. commercial customer count surging by 69% year over year to 262. Karp believes that U.S. commercial revenue will be one of Palantir's key growth drivers in the near term.
The company's steady profitability, consistent free cash flow, and healthy traction in securing both commercial and government customers is a testament to its growing clout. Palantir disclosed during its IPO in 2020 that its total addressable market for the commercial and government sectors stood at around $119 billion. With revenue of just $2.2 billion in 2023, this market estimate represents a sizable growth opportunity for the company.
2. Meta Platforms
Meta Platforms (META 1.25%) is a social media company that owns the popular chat program WhatsApp, the photo and video-sharing app Instagram, and the social media site Facebook. In late April, the company rolled out Meta AI, the latest version of its AI assistant, which was built on its large language model (LLM), Llama 3. This AI tool is built into the search boxes for WhatsApp, Facebook, Instagram, and Messenger to allow users to ask questions using natural language that can be easily answered.
There's more from Meta as the company plans to gradually introduce new capabilities such as longer context windows along with enhanced performance. Meta AI's LLM model is trained on a vast amount of data and CEO Mark Zuckerberg said back in October last year that AI will be Meta's biggest investment area for 2024, with the business set to spend billions of dollars to beef up its AI capabilities.
Meta reported a robust set of earnings for 2023 with revenue rising 16% year over year to $134.9 billion. Net income surged by 69% year over year to $39.1 billion and the business generated a positive free cash flow of $43.8 billion, more than double the $19 billion that was churned out in the previous year. The board also initiated the social media giant's first-ever dividend with a quarterly payout per share of $0.50.
The strong momentum carried into the first quarter of 2024 (Q1 2024) with revenue climbing 27% year over year to $36.5 billion. Net income for the quarter soared 117% year over year to $12.4 billion. Meta's daily active people rose 7.3% year over year to 3.24 billion, demonstrating the social media company's ability to continue attracting new users.
With the inclusion of Meta AI into its apps and the promise of continued enhancements, investors can look forward to better numbers ahead as more users flock to use Meta's apps and platform.
3. Adobe
Adobe (ADBE 3.42%) has integrated its native generative AI application called Firefly across its Experience and Creative Cloud platforms. By doing so, the company hopes to deliver increased personalization and enable users to automate tasks while reducing search time and effort. Recent innovations include the new Generative Fill for Adobe's Photoshop product that's designed for customers to create stunning images.
Firefly allows customers to generate realistic photos by using natural language, a strong plus for non-technically trained users that helps to reduce the learning curve. This generative AI tool has also been integrated into its core Acrobat product. Customers can ask questions and gain insights across PDFs and other types of documents. This extensive use of Firefly enables Adobe to deliver greater personalization and convenience.
Adobe reported strong earnings for the first half of fiscal 2024 ending May 31. Revenue rose 10.8% year over year to $10.5 billion, a record high. The digital media company saw both operating and net income fall 13% and 13.7% year over year, respectively, because of a $1 billion termination fee related to its aborted attempt to purchase Figma. Excluding this one-time item, operating and net income would have risen by 18% and 25.6% year over year, respectively.
CEO Shantanu Narayen said the company's AI approach has delivered better value and resulted in a larger base of customers. Adobe raised its annual target for net new annual recurring revenue, digital experience subscription revenue, and earnings per share. Investors should view this upgrade as a vote of confidence for the company's prospects as it harnesses the power of AI to grow its customer pool and drive further earnings growth.
