2 artificial intelligence (AI) stocks that could go parabolic

The fast-growing adoption of artificial intelligence (AI) across multiple industries has given several companies’ stocks a massive boost over the past year and a half, helping the tech-savvy. Nasdaq-100 Technology Sector the index clocks in at a whopping 80% since the start of 2023.

Thanks to artificial intelligence, many technology companies have seen a parabolic rise in their stock prices. These include Nvidia, SoundHound AI, Super Micro Computerand Broadcomamong others. A parabolic move refers to the rapid increase in stock price over a very short period of time, similar to the right side of a parabolic curve.

Let’s take a closer look at two such stocks that could go parabolic due to the proliferation of AI.

1. ASML Holding

ASML Holding (ASML -0.20%) is undoubtedly one of the most important companies in the AI ​​revolution. Its extreme ultraviolet (EUV) lithography machines help chipmakers and foundries shrink their chip sizes. More specifically, EUV lithography allows semiconductor companies to produce chips based on 7 nanometer (nm), 5 nm, and 3 nm process nodes.

The smaller the node size, the more powerful and energy efficient a chip is considered to be. A smaller process node allows a chipmaker to pack more transistors into a smaller area, resulting in more computing power and less heat generation. Not surprisingly, popular AI chips such as Nvidia’s H100 and AMDThe MI300 series of accelerators is based on 4nm process nodes.

These chipmakers can only produce these smaller chips through ASML machines because the Dutch semiconductor giant has a monopoly on this market. This strong position puts ASML on track to deliver outstanding long-term growth as the EUV lithography market size is expected to grow at an annual rate of 22% by the end of the decade, generating annual revenues of $37 billion. dollars in 2030.

More importantly, semiconductor companies around the world are ready to invest huge sums of money in upgrading their infrastructures. The US, for example, is expected to triple its semiconductor manufacturing capacity by 2032. The country’s capital spending on semiconductors is expected to be about $2.3 trillion between 2024 and 2032, compared to $720 billion of dollars in the last 10 years.

On the other hand, Taiwan Semiconductor Manufacturing (TSMC), the world’s largest semiconductor foundry, will buy $12.3 billion worth of EUV machines in the future. All of this bodes well for TSMC, and there’s a good chance the company will sustain its impressive growth over the long term as well, given that the AI ​​chip market could grow at an annual rate of nearly 41% through 2032.

Unsurprisingly, ASML’s earnings are expected to grow at an impressive pace next year, after a flat performance in 2024.

ASML EPS estimates for current fiscal year data by YCharts.

Additionally, analysts expect the company’s earnings to grow at a healthy 21% annual rate over the next five years. An improvement in ASML growth could lead the market to reward the stock with more upside. Shares of the semiconductor bellwether have gained 20% so far in 2024. However, as the discussion above indicates, there’s a good chance they’ll end the year with much stronger gains as rising semiconductor equipment spending could trigger a parabolic move in ASML Stock .

2. Palantir Technologies

It would be safe to say that Palantir Technologies (PLTR -1.56%) The stock has already made a parabolic move of late, rising nearly 32% since the release of its second-quarter 2024 results on August 5.

This spike in Palantir’s stock price this month can be attributed to the company’s rapid growth in AI revenue. More specifically, Palantir’s AI software platform is gaining healthy traction among customers, leading to an acceleration in the company’s growth. It reported a 27% year-over-year rise in second-quarter revenue to $678 million.

That was much faster than the 13% year-over-year revenue growth Palantir posted in the same quarter last year. On the company’s recent earnings conference call, Palantir management noted that its Artificial Intelligence Platform (AIP), which enables customers to integrate AI for their use cases, is playing a direct role in driving its growth.

Not only is the company attracting new customers for its AI services, but its existing customers are also signing larger deals to use Palantir’s AI offerings. For example, the number of the company’s commercial customers in the US increased by 83% year over year, while the total number of customers increased by 41% compared to the same quarter last year.

The company also closed 27 deals worth at least $10 million, a 50% increase over the same quarter last year. Improved customer numbers and increased deal sizes explain why Palantir’s current quarter revenue guidance of $699 million is up 25% year-over-year. That would be better than the 17% revenue growth seen in the same quarter last year.

More importantly, Palantir looks capable of sustaining its revenue growth improvement well into the future, given that the remaining deal is valued at an impressive $4.3 billion. This metric refers to the total remaining value of the company’s contracts at the end of a quarter and was up 26% from the same quarter last year.

Moreover, the expansion of Palantir’s customer base and spending is accompanied by an improvement in the company’s margin profile. The company’s adjusted operating margin rose to 37% in the previous quarter, from 25% in the same period last year. Palantir management says its business has “strong unit economics,” meaning it can generate more profit from each customer and enjoys lower customer acquisition costs.

As such, there’s a solid chance that Palantir’s margin profile will continue to improve going forward and help the company deliver healthy earnings growth. Not surprisingly, consensus estimates project Palantir’s earnings to grow at a compound annual growth rate of 85% over the next five years. This indicates that the stock could continue to head higher even after its last parabolic move.