It really wasn’t too long ago that the idea of computers having a mind of their own was inconceivable. Yet, here we are in the 2020s, and machine learning is a reality. Today, artificial intelligence (AI) has a broad array of use cases, from motor vehicles to work management and cybersecurity.
Sure, there are mega-corporations with businesses interests in AI. If you’re invested in major-market index funds, there’s a pretty good chance that you already have some exposure to companies that dabble in machine learning.
To put a pure-play AI stock in your portfolio, though, you’ll probably have to delve into midsize companies. That’s not a bad thing, as smaller stocks can make outsized moves. Just be prepared to accept a measure of price volatility. If you can handle that, then here are two hidden treasures that provide direct exposure to the exciting world of AI.
AI Stock #1: C3.ai (NYSE:AI)
No, it’s not a website; C3.ai is actually a company, and it’s one of the most ambitious midsize enterprise AI application software companies around. For machine-learning-focused software-as-a-service (SaaS), California-based C3.ai is considered a niche-market mainstay.
Even as C3.ai is niche-oriented, its SaaS products have a wide variety of applications. These run the gamut from fraud detection to sensor network health, supply network optimization, energy management, customer engagement, and even anti-money-laundering use cases.
There are too many C3.ai SaaS products to describe here, so I’ll provide you with a representative example. C3.ai has a machine-learning-powered product that’s specifically designed to facilitate CRM (customer relations management). This is a high-demand product type in a post-COVID-19 world where so much work is done remotely.
Through the power of machine learning, C3.ai’s SaaS can make CRM more efficient and reliable while creating cost savings for businesses. As the company describes it, the C3.ai CRM product “trains AI models to predict and inform sales, marketing, and customer service actions” while identifying and visualizing “factors impacting opportunities, forecasts, and revenue – enabling them to carefully plan or quickly take action to ensure customer satisfaction.”
That’s a mouthful, but it’s more than just ad copy. It’s the power of machine learning in action, impacting how today’s businesses get work done in real time. This begs an important question, though: does C3.ai’s SaaS-centered business model allow for robust revenue growth?
Indeed, it does. During the company’s most recently reported fiscal quarter, C3.ai grew its revenue 25% year-over-year to $65.3 million – not too shabby for a midsize business. Also importantly, the company increased its subscription revenue by 24% year-over-year to $57 million, thereby demonstrating that C3.ai’s customers aren’t just turning to the company for one-time purchases.
Is C3.ai a Buy, According to Analysts?
Turning to Wall Street, C3.ai comes in as a Hold based on one Buy, six Holds, and two Sell ratings assigned in the past three months. The average C3.ai price target of $15.29 implies 30.6% upside potential.
AI Stock #2: SentinelOne (NYSE:S)
If you’ve been in the financial markets for a while, you might recall that “S” stock used to be Sprint. However, telecom mergers left that ticker available for California-headquartered SentinelOne to scoop up, and it’s been a worthy midsize holding for a while now.
Some folks might pigeonhole SentinelOne as a cybersecurity company. Yet, that’s an oversimplification, as SentinelOne could also be characterized as a premier AI-focused business enterprise. Notably, the company deploys AI-powered software solutions that detect, prevent, and even hunt for threats “across endpoints, containers, cloud workloads, and IoT devices.”
SentinelOne doesn’t mind bragging that its AI-powered security solutions stop breaches “faster than any human could.” The company’s flagship product/service is the SentinelOne Singularity Platform, which manages data “at enterprise scale to make precise, context-driven decisions autonomously, at machine speed, without human intervention.”
It might be scary to consider that SentinelOne is so confidently replacing some human workers with machines, but it’s an unstoppable trend, and investors should either get exposed to AI or get out of the way. Like it or not, this is where technology is headed, and SentinelOne stock could be primed for a major move once the broader tech sector recovers from its current slump.
Of course, this wouldn’t be a complete assessment of SentinelOne without a deep dive into the company’s financial profile. If you thought C3.ai’s revenue growth was impressive, then check this out: during SentinelOne’s most recently reported quarter, the company increased its revenue by a whopping 124% year-over-year to $102.5 million.
Along with that, SentinelOne grew its annualized recurring revenue (ARR) 122% to $438.6 million and expanded its total customer count by 60% to over 8,600 customers as of July 31, 2022. Clearly, SentinelOne is in hyper-expansion mode, not unlike the AI market itself.
Is SentinelOne a Buy, According to Analysts?
Turning to Wall Street, SentinelOne comes in as a Strong Buy based on nine Buys and three Hold ratings assigned in the past three months. The average SentinelOne stock price target of $35.08 implies 69.3% upside potential.
Conclusion: It’s a Great Time to Consider C3.ai and SentinelOne
Due to the recent downturn in technology stocks, both C3.ai and SentinelOne shares are much closer to their 52-week lows than their 52-week highs. This presents a terrific opportunity for contrarian investors with a strong conviction in these two midsize, machine-learning-focused businesses.
Granted, these aren’t mega-cap companies with endless capital reserves and global brand-name recognition. Yet, that’s the beauty of midsize businesses: they might grow into mega-caps, and early investors could enjoy life-changing gains. So, consider a couple of hidden gems, C3.ai and SentinelOne, as they grow their revenue today and power the tech trends of tomorrow.