Investors looking to buy AI stocks that are inexpensive but have solid growth potential should take a closer look at these two names.
Artificial intelligence (AI) has been a driving force for many technology companies for nearly two years, which explains why the Nasdaq-100 technology sector The index has posted excellent gains of 78% since November 2022, and the good thing is that the adoption of this technology is still in its infancy.
According to estimates, the global AI market was worth an estimated $136 billion last year, and by 2030, the size of this market is expected to reach nearly $827 billion. That’s why buying and holding solid AI stocks for the long term could prove to be a smart move for investors looking to get richer.
Here’s a closer look at two such companies that are poised to benefit from the adoption of AI in various fields. More importantly, shares of both companies trade at reasonable valuations, which is why they look like solid buys right now.
The increasing demand for AI software is driving the growth of this company
As companies and governments focus on harnessing the power of AI, the demand for software that can help them integrate this technology into their operations will grow rapidly in the future. S&P Global Market Intelligence predicts that the generative AI software market could witness a compound annual growth rate (CAGR) of 58% through 2028 and generate annual revenues of $52 billion by the end of the forecast period, up from $5.1 billion last year.
The company points out that organizations are investing more resources in generative AI software to improve their operational efficiency and drive innovation in their companies. This is likely the reason why the demand for C3.ai‘S (AI -2.25%) Generative AI software is on the rise.
The company’s revenue increased 16% to $310.6 million in fiscal year 2024 (which ended in April this year). C3.ai is forecasting revenue of $382.5 million for the current fiscal year. That would be a 23% increase over fiscal year 2023 and indicates a nice increase in the company’s growth rate. C3.ai’s improved growth profile is due to the growing number of customers choosing to use the company’s enterprise AI software offerings.
C3.ai not only provides enterprise customers with ready-to-use applications but also development tools that enable them to build custom AI applications. In addition, the company offers a software platform that enables its customers to build, launch and run generative AI applications for their respective use cases. C3.ai also offers its AI software solutions through several cloud computing partners such as Google Cloud. Amazon Web services and Microsoft Azure blue.
In fiscal 2024, the number of contracts closed by C3.ai increased an impressive 52% year-over-year to 191. The company’s partner network played a central role in this growth, with 115 contracts coming through this channel, a 62% increase year-over-year. More importantly, C3.ai points out that the pipeline of qualified leads through its partner network increased by 63% last year.
All of this points to a bright future for C3.ai, which is probably why consensus estimates call for a compound annual growth rate of nearly 51% over the next five years. So, C3.ai could prove to be a top pick in the AI space over the long term, which is why investors would do well to buy the company right now.
The stock currently trades at 9 times sales, which is not that expensive compared to the average price-to-sales ratio in the US technology sector of 8. The company is not yet profitable, but forecasts suggest it will be in the black in a few years.
This should come as no surprise, given the potential acceleration of C3.ai’s growth, which could drive the company’s stock price higher in the future.
The rapidly growing proliferation of smartphones with generative AI could give this name a nice boost
The recovery of the global smartphone market thanks to the introduction of generative AI-enabled devices is proving to be a tailwind for Qualcomm (QCOM -1.20%)This was evident from the company’s results for the third quarter of fiscal 2024 (for the three months ended June 23).
The semiconductor specialist, which derives a large portion of its revenue from selling smartphone chips, reported an 11% year-over-year increase in total revenue to $9.4 billion. Adjusted earnings rose 25% year-over-year to $2.33 per share. The chipmaker expects revenue of $9.9 billion for the current quarter, at the midpoint of its forecast, which represents a 14% increase from the same period last year.
Qualcomm’s adjusted profit is also expected to rise 26% year-over-year. The forecast suggests that Qualcomm’s growth will accelerate, and this trend could continue for a long time given the enormous opportunity in AI smartphones. Market research firm IDC predicts a whopping 336% increase in sales of generative AI smartphones this year, to 234 million units. By 2028, IDC expects generative AI smartphone shipments to rise to a whopping 912 million units per year.
Qualcomm will be one of the biggest beneficiaries of this long-term 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, according to Counterpoint Research, and its chips are used by major smartphone original equipment manufacturers (OEMs) such as Samsung to power generative AI smartphones.
The possibilities of generative AI are one of the reasons why analysts have apparently raised their expectations for Qualcomm’s earnings growth in recent months.
However, the company’s earnings are currently growing at over 20%, so it won’t be surprising if it beats consensus estimates. That’s why buying Qualcomm stock is a no-brainer right now, as it trades at just 22 times trailing earnings and 15 times forward earnings, a nice discount to the U.S. tech sector’s average earnings multiple of 46.
John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Harsh Chauhan does not own any of the stocks mentioned. The Motley Fool owns and recommends Amazon, Microsoft, Qualcomm, and S&P Global. The Motley Fool recommends C3.ai and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.