Yahoo Finance Future-Proofing Your Portfolio: Embrace AI Stocks for Long-Term Growth
Written by Brian Paradza, CFA at The Motley Fool Canada
The winds of technological change are constantly shifting, and savvy investors know the importance of adapting their portfolios to stay ahead of the curve. Artificial intelligence (AI) stands as one of the most transformative forces shaping the future, and incorporating AI stocks into your long-term investment strategy can be a powerful move toward securing sustainable capital growth.
But with a plethora of AI companies vying for attention, how do you identify and incorporate these future-proof growth stocks into your investment strategy? This is where understanding the transformative power of AI and its impact on specific businesses becomes crucial.
This article will explore two most recent and compelling examples: Palantir Technologies (NYSE:PLTR) stock and OpenText (TSX:OTEX) stock, showcasing how AI can fuel business growth and turn around financial fortunes.
Palantir Technologies stock: From a government goliath to a commercial AI powerhouse
Palantir Technologies, a US$48.8 billion U.S. technology stock once known for its secretive contracts with government agencies and as a key intelligence software provider for warfare, has recently undergone a remarkable transformation. Leveraging its expertise in data fusion and analysis, Palantir’s recent pivot towards the commercial sector to offer AI-powered data analytics and decision platforms empowered businesses to make real-time, data-driven decisions, and revenue growth accelerated in 2023.
Recognizing the potential in the private business market, Palantir turned a prototype into a commercially deployable AI platform in just a few months. The new platform, called AIP (AI Platform), helped propel Palantir’s fourth-quarter (Q4) 2023 revenue to US$608 million — a 20% increase year over year.
The company’s U.S. commercial revenue grew by 70% year over year in Q4 to US$131 million (or 21.6% of quarterly sales), and totaled US$457 million for the year, propelling the company into record quarterly profit and its first-ever profitable year since its formation.
After Palantir released its latest quarterly earnings report on February 5, its stock price jumped by 40% in just two trading sessions.
In 2024, Palantir is fully focused on rolling out its commercial AI platform. Management expects U.S. commercial revenue to exceed US$640 million — a 40% increase compared to last year. Combined with a strong government business portfolio, Palantir may generate record earnings and substantial free cash flow this year.
The fact that Palantir relies on long-term contracts and recurring revenue makes its stock even more appealing to investors who want to future-proof their portfolios for sustainable, long-term growth.
Wall Street analysts project an 85.2% earnings growth rate over the next five years. Given its forward price-to-earnings (P/E) ratio of 66, Palantir stock’s forward P/E-to-growth ratio of 0.9 implies shares are undervalued relative to their future earnings growth rate.
OpenText stock: Reinventing content management
OpenText, a veteran in the enterprise content management (ECM) space, has faced stiff competition from cloud-based solutions in recent years. Management’s strategic decisions to migrate platforms to the cloud and integrate AI into the company’s core products have proved pivotal for OpenText stock’s future trajectory.
OpenText committed to releasing a new product every 90 days in 2023 and 2024, and its AI-powered platforms offer intelligent content extraction, process automation, and enhanced security features today. They help the business retain customers, future-proof its offerings, and position the $15 billion Canadian tech stock for sustainable organic growth.
In a recent quarterly financial report released earlier this month, OpenText reported record revenue of more than $1.5 billion, a 71% year-over-year increase. A recent acquisition of Micro Focus significantly influenced growth. However, part of the growth was from customers “beginning their AI journey,” the company’s chief executive officer Mark Barrenechea noted in the earnings release.
On the back of its AI-powered cloud business and new Aviator AI platform products, OpenText expects cloud bookings growth of 25-30% this fiscal year, boosting the company’s organic revenue growth rate.
Investor takeaway: Embrace AI stocks for long-term growth
While OpenText stock and Palantir Technologies stock showcase the transformative power of AI, they are just the tip of the iceberg. Opportunities abound across various sectors, from semiconductor manufacturers powering AI computing to healthcare, finance, retail, and manufacturing. Companies that can quickly adapt to AI or successfully market new AI products should do well in the future.
By incorporating AI stocks into your investment portfolio, you could gain exposure to a transformative technology that’s reshaping industries, creating unprecedented growth opportunities, and richly rewarding early investors.
The post Future-Proofing Your Portfolio: Embrace AI Stocks for Long-Term Growth appeared first on The Motley Fool Canada.
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Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends Palantir Technologies. The Motley Fool has a disclosure policy.
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