Overall, this year has seen a solid turnaround from last year’s losses. The S&P 500 and the NASDAQ are both showing year-to-date gains, of 16% and 27% respectively. That holds, even as the last few weeks have been disappointing; the S&P is down ~4% this month, and the NASDAQ is down 6%.
One thing is clear: tech stocks powered the year’s gains, riding high on the surge of interest in artificial intelligence tech, AI, which burst into prominence with ChatGPT’s release last November. AI has transformed the markets, getting investors’ attention with its promise of greater adaptability, efficiency, and profitability, and some of the Street’s analysts are saying that the AI boom is no flash in the pan but a lasting change.
Wedbush’s Daniel Ives, a 5-star analyst rated in the top 2% of the Street’s stock pros, epitomizes this view. He has long been a booster for tech stocks, and in a recent note he reassures investors that ‘now is not the time to become scared.’
Ives acknowledges the hodgepodge of pressures on the stock markets, describing the current environment as a ‘Rubik’s Cube backdrop,’ but goes on to say, “We focus on tech growth led by AI. It all comes down to growth in the tech space and what do true Street numbers ultimately look like into 2024, this remains the key focus in our opinion for investors…. It’s the rocket ship-like trajectory of AI driven growth that will hit the shores of the tech industry over the next 12-18 months that speaks to our unabated bullishness for tech stocks.”
Ives’ recent stock recommendations show that he truly is all-in on AI. He’s taken strongly bullish stances on AI-driven tech stocks, believing that AI will drive growth forward. Here are two of his recent picks.
Palantir Technologies (PLTR)
In Tolkien’s Lord of the Rings, the palantiri were magical seeing-stones, allowing the holder to view events far away in both time and space. Palantir Technologies, a software firm founded in part by Peter Thiel, is nothing so supernatural – but it does offer one gift that the palantiri never did: this software firm’s AI-powered data analytics help users make sense of the pictures that they do have. The company wants AI to augment, not replace, human intelligence. To that end, the company has developed natural language systems that allow human users to interact with the company’s AI systems to find answers to complex questions – without the need for falling back on computer languages or statistical models.
Palantir offers its customers an array of AI-driven platforms, optimized for various purposes. Customers can activate and control AI on private networks; develop real-time connections between data, analytics, and operations; and improve and accelerate decision-making operations. The company and its software products have found relevance across a varied spectrum of human endeavors, from auto racing to cryptocurrency to the defense industry to healthcare to the automotive sector.
Palantir was founded in 2003, and in its two decades of operation, the company has matured into a giant of the software world. It boasts a $30 billion market cap, and last year brought in more than $1.9 billion in total revenues. In its last financial release, for 2Q23, the company had a top line of $533 million, in line with the forecasts and up nearly 13% year over year. The firm’s bottom line, a non-GAAP adjusted EPS of 5 cents per diluted share, was also in line with expectations – as well as marking a third consecutive profitable quarter. So far this year, Palantir’s shares are up an impressive 119%.
For Daniel Ives, the key point here is Palantir’s ability to deliver the AI data analytics systems that users need and want, while leveraging that for growth. He said in a recent note, “Since the company’s inception, Palantir has been focused on providing enhanced analytics by leveraging artificial intelligence, building intelligent platforms for data management and security that enables users to address intricate questions without the need for statistical or computational expertise. In eye-popping up-times with customers that we spoke with at the conference completely & fully integrated between 1-4 weeks of signing papers, an impressive feat that speaks to the PLTR AI vision now playing out. Palantir is continuing to pioneer and guide customers to deploy products, optimize workflows, and produce operational results at industry-leading rates while incorporating privacy-protective features.”
This stance, according to Ives, supports an Outperform (i.e. Buy) rating on PLTR shares, while his $25 price target points toward a bullish future, with a 78% upside in the cards. (To watch Ives’ track record, click here.)
However, Ives’ bullish stance is something of an outlier compared to the Street’s caution. Palantir has 15 recent analyst reviews, including 3 Buys, 6 Holds and 6 Sells, for a Hold consensus rating. (See PLTR stock forecast)
C3.ai, Inc. (AI)
The second of Ives’ picks is C3.ai, a software company that has gone all-in on the new tech, integrating artificial intelligence as the central feature of its C3 AI Application Platform. The company offers its customers a range of AI-powered products and tools, featuring generative AI, machine learning, and developer tools. C3.ai has found its customers across a wide range of industries, including manufacturing, oil & gas, utilities, defense & intelligence, financial services, healthcare, retail, and telecom; the products are used in everything from predictive maintenance to supply chain optimization, customer engagement to fraud detection.
A quick look at C3.ai’s stock performance shows just how much of a boost AI can give a company. As noted, the tech-heavy NASDAQ index is up 27% year-to-date – but shares in C3.ai are racing far ahead of that, having gained 138% since the start of this year. That gain comes even after losses earlier this month.
The early-September losses came on the heels of C3.ai’s fiscal 1Q24 earnings report. The company beat expectations at the top and bottom lines, normally a net positive, but also announced that it is no longer predicting a turn toward net-profitability by the end of fiscal year 2024.
But the earnings beats are worth a look. C3.ai reported revenues of $72.4 million, up more than 10% year-over-year and beating the forecast by $760K, while the bottom line loss – common among cutting-edge tech firms – came in at 9 cents per share by non-GAAP measures, 8 cents better than had been anticipated. Some 85% of C3.ai’s revenue, or $61.4 million, was from subscriptions, a good metric that points toward continuing revenue success.
That potential for continued success attracted Daniel Ives. The top analyst believes that patient investors should weather the current doldrum in AI’s share price for the promise of rewards later.
“We continue to believe C3.ai is well-positioned to grab a significant portion of the Generative AI market through partnership expansion and market offerings with its proprietary suite of enterprise AI applications that continue to see an elevated pipeline with shortened sales cycles despite the murky macro backdrop with its successful consumption-based model. We view the near-term heightened investment profile as near-term pain for long-term gain and speaks to the building pipeline c3 is seeing in the field,” Ives opined.
To this end, Ives rates AI shares an Outperform (i.e. Buy), while his $42 price target implies a one-year gain of 63%
That’s one bullish take on C3.ai; the Street, generally, isn’t quite ready to go so gung-ho on this stock. AI shares have 12 recent analyst reviews, with a breakdown of 2 Buys, 6 Holds, and 4 Sells, for a Hold consensus view. (See AI stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.