Artificial intelligence (AI) has been a driving force for many technology companies for nearly two years now, which explains why the Nasdaq-100 Technology Sector index has clocked outstanding gains of 78% since November 2022, and the good part is that the proliferation of this technology is still in its early stages.
It is estimated that the global AI market was worth an estimated $136 billion last year. By 2030, the size of this market is expected to hit nearly $827 billion. That's why buying and holding solid AI stocks for the long run could turn out to be a smart move for investors looking to get richer.
Here's a closer look at two such companies that are on track to benefit from the adoption of AI in different areas. More importantly, both companies' stocks trade at reasonable valuations, which is why they look like solid buys right now.
Growing AI software demand is boosting this company's growth
As companies and governments focus on harnessing the power of AI, the demand for software that's capable of helping them integrate this technology into their operations is going to grow rapidly in the future. S&P Global Market Intelligence forecasts that the market for generative AI software could clock a compound annual growth rate (CAGR) of 58% through 2028, generating annual revenue of $52 billion at the end of the forecast period as compared to $5.1 billion last year.
The company points out that organizations are putting more resources into generative AI software to improve their operational efficiency and drive innovation within their businesses. This is probably why the demand for C3.ai's (AI 6.62%) generative AI software is on the rise.
The company's revenue increased 16% in fiscal 2024 (which ended in April this year) to $310.6 million. C3.ai is forecasting $382.5 million in revenue in the current fiscal year. That would be a 23% increase over fiscal 2023 levels and points toward a nice bump in the company's growth rate. C3.ai's improving growth profile can be attributed to the growing number of customers opting to use the company's enterprise AI software offerings.
NYSE: AI
Key Data Points
C3.ai not only provides ready-to-use applications to enterprise customers, but it also offers development tools so that they can make custom AI applications. It also offers a software platform through which its customers can build, launch, and operate generative AI applications for their particular use cases. C3.ai also offers its AI software solutions through multiple cloud computing partners such as Google Cloud, Amazon Web Services, and Microsoft Azure.
In fiscal 2024, the number of agreements that C3.ai struck increased by an impressive 52% from the previous year to 191. The company's partner network played a central role in that growth as 115 agreements came through this channel, an increase of 62% from the previous year. More importantly, C3.ai points out that the pipeline of qualified leads through its partner network was up by 63% last year.
All this points toward a bright future for C3.ai, which is probably the reason why consensus estimates expect its bottom line to increase at a compound annual growth rate of almost 51% for the next five years. So, C3.ai could turn out to be a top AI pick in the long run, which is why investors would do well to buy it right away.
The stock is currently trading at 9 times sales, which isn't all that expensive when compared to the U.S. technology sector's average price-to-sales ratio of 8. The company isn't profitable yet, but it is forecasted to be in the black in a couple of years.
AI EPS Estimates for Current Fiscal Year data by YCharts
That won't be surprising considering the potential acceleration in C3.ai's growth, which could send shares of this company soaring in the future.
The fast-growing adoption of generative AI smartphones could give this name a nice boost
The recovery in the global smartphone market thanks to the advent of generative AI-enabled devices is turning out to be a tailwind for Qualcomm (QCOM 2.55%). This was evident from the company's fiscal 2024 third-quarter results (for the three months ending June 23).
NASDAQ: QCOM
Key Data Points
The semiconductor specialist, which gets a big chunk of its revenue from selling smartphone chips, saw its overall revenue increase 11% year over year to $9.4 billion. Adjusted earnings, meanwhile, jumped 25% year over year to $2.33 per share. The chipmaker anticipates $9.9 billion in revenue in the current quarter at the midpoint of its guidance range, which would be a 14% jump over the prior-year period.
Qualcomm's adjusted earnings are also on track to increase by 26% on a year-over-year basis. The guidance suggests that Qualcomm's growth is set to pick up, and that's a trend that could continue for a long time to come considering the huge opportunity in AI smartphones. Market research firm IDC is forecasting a whopping 336% jump in sales of generative AI smartphones this year to 234 million units. By 2028, IDC expects generative AI smartphone shipments to jump to a whopping 912 million units annually.
Qualcomm will be one of the biggest beneficiaries of this secular growth trend as 63% of its revenue comes from selling smartphone processors. The company controls an estimated 23% of the global smartphone application processor market as per Counterpoint Research, and its chips are being used by major smartphone original equipment manufacturers (OEMs) such as Samsung to power generative AI smartphones.
The generative AI opportunity is one of the reasons why analysts seem to have increased their earnings growth expectations from Qualcomm in recent months.
QCOM EPS Estimates for Current Fiscal Year data by YCharts
However, the company's bottom line is now growing at a 20%-plus rate, so it won't be surprising to see it outpacing consensus estimates. That's why buying Qualcomm stock right now looks like a no-brainer as it is trading at just 22 times trailing earnings and 15 times forward earnings, a nice discount to the U.S. technology sector's average earnings multiple of 46.
