Artificial intelligence (AI) and its subsectors like machine learning are poised to transform the way we do business. Some companies are already leveraging these advanced technologies to complete complex tasks instantly, removing the need for countless hours of human intervention.
But this is only the beginning. AI offers predictive capabilities unlike any tools we’ve seen in the past, helping organizations anticipate critical failures in their overall equipment, software, and processes.
The AI industry had an estimated addressable market of $93 billion in 2021, but it’s expected to grow tenfold to $997 billion per year by 2028. These five stocks can help you pull take advantage of this explosive growth in the AI industry and turn it into share price growth.
C3.ai ( AI -9.82% ) is a one-of-a-kind enterprise AI company. It sells off-the-shelf, custom-built AI applications to companies that want to access the benefits of technology, but may not have the expertise to build it from scratch. It currently serves 14 different industries, including oil and gas, financial services, manufacturing, and healthcare.
Companies in the oil and gas industry, for example, use C3.ai applications to predict costly equipment failures, preventing catastrophic production shutdowns. Plus, they use it to improve efficiency and reduce carbon emissions. oil giant Shell currently monitors over 10,000 devices and 23 large-scale assets using C3.ai, making 1.3 trillion predictions per month.
The company just signed a blockbuster deal with the U.S. Department of Defense worth $500 million over five years, and has also secured extensive collaboration agreements with tech giants like Microsoft and Alphabetit’s ( GOOG -1.66% )( GOOGLE -1.93% ) Google to create advanced artificial intelligence applications.
C3.ai currently trades at a market valuation of just $2.2 billion, with more than $1 billion in cash and short-term investments on its balance sheet, meaning investors are valuing its core business as only $1 billion. That’s despite $252 million in estimated revenue for fiscal 2022, with $469 million in performance obligations remaining as of last fiscal third quarter, a metric that jumped 90% year-over-year. This stock looks cheap and its diverse customer base makes it a great way to play the future of the AI industry.
The consumer lending industry hasn’t changed much over the past few decades, with most banks still relying on the 30-year FICO scoring system to assess potential borrowers, which considers only a handful of key metrics to determine creditworthiness.
Assets received ( UPST -11.20% ) shakes things up, leveraging artificial intelligence to examine over 1,600 data points, generating a more accurate representation of the borrower and providing an instant decision 70% of the time. Upstart claims that its algorithm resulted in 75% fewer defects for the same rate of approvals, compared to the traditional evaluation method.
The company started with unsecured personal loans, but quickly expanded into auto loans. At the end of 2021, the number of car dealerships using Upstart’s two-in-one loan origination and sales platform stood at 410, representing a growth of 269% compared to the end of 2020. the business soared 264% for the year to $849 million. , with $2.37 in earnings per share. That’s right – this high-growth AI company is also profitable.
Upstart is such an attractive proposition that one Wall Street analyst at Citigroup thinks its stock could climb 198% to $350 per share.
The next AI growth stock investors should buy now and hold is Splunk (SPLK -3.74% ). It’s a machine learning powerhouse that serves 92 of the Fortune 100 companies, underscoring the growing demand for cutting-edge technologies across industries.
One of Splunk’s customers, Dominos Pizza, uses machine learning to monitor more than 15 digital sales channels, harvesting and analyzing data in real time. Splunk provides insights based on this information to predict issues and help make rapid improvements in a live environment. Likewise, the car manufacturer Honda leverages Splunk insights to reduce repair time at its Alabama plant by 70%, avoiding costly downtime with the platform’s predictive analytics.
Splunk is in the midst of a transition in its business. It is focused on offering its services in the cloud, making them much more accessible, and generating increased revenue. In the company’s just-ended 2022 fiscal year, cloud-based sales increased 70%, compared to overall sales which increased 19%. Splunk’s cloud revenue of $943 million also grew to 35% of the total revenue base of $2.67 billion, from just 24% the previous year.
Splunk is also attracting more large customers. In fiscal 2022, it had 675 customers spending $1 million or more per year, up 32% from fiscal 2021.
A new CEO who brings experience in software-as-a-service (SaaS) revenue models has also joined the company, which will help Splunk move into its next phase of growth.
4. Alphabet letters
Alphabet’s Google is a household name, and you may have found this article through its search engine. But that’s why it’s on this list: artificial intelligence is at the heart of Google’s ability to produce the most accurate results for searchers.
Research is not just about answering queries, but about deciphering what a researcher means when they type a phrase into Google. The company’s language model is able to process 680 million parameters in just 3 milliseconds when a spelling or grammar error is made by the user, to deliver a potentially more accurate search term.
But Google’s AI presence extends even beyond that. It helps customers develop technology with a suite of cloud-based tools, including pre-trained machine learning models that can reduce the amount of programming work required by up to 80%. It gives developers a huge head start when building models for data analysis, image classification, and video discovery, for example.
Alphabet is a $1.7 trillion company, with revenue exceeding $257 billion in 2021, a 41% growth from 2020. Of that, $19.2 billion was generated by Google’s cloud business, which hosts its artificial intelligence segment for customers, grew faster 47% for the year.
With numbers like that, this tech giant is worthy of any long-term wallet.
Lemonade (LMND -7.38% ) leverages AI to radically overhaul the customer experience in the insurance industry, and so far it has managed to attract over 1.4 million customers, many of whom have abandoned Lemonade’s much larger competitors .
Artificial intelligence is at the heart of the company, powering its online robot, Maya, which can provide an insurance quote in less than 90 seconds without human intervention. But claims tend to be the biggest source of frustration for customers, and Maya has that covered too, with the ability to assess and pay claims in as little as three minutes.
Lemonade operates in five insurance categories, with the biggest opportunity being auto insurance. It entered this market in 2021, acquiring another AI-powered insurer MetroMile along the way, absorbing 49 US state licenses and a decade of payload data.
Investing in Lemonade is risky as it is still building the foundations of your business. Its stock price crashed 82% amid the tech selloff, but this could be an opportunity to take a long-term position. While Lemonade lost $246 million in 2021, the auto insurance market could represent a $316 billion opportunity in 2022 alone, so given enough time, the company could do exceptionally well.
In fact, the Wall Street firm JMP Titles thinks Lemonade stock could climb 357% to $95 per share.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.