The growing adoption of artificial intelligence (AI) has led to nearly 16 months of skyrocketing in the stock prices of companies involved in popularizing this technology, with many companies seeing their stock prices rise parabolically.
A parabolic move is a rapid rise in a company’s stock price over a short period of time, similar to the right side of a parabola on a chart. Nvidia (NVDA -1.32%) is a typical example of this phenomenon. The graphics specialist has seen a parabolic rise in its share price since the beginning of 2023, with its shares up a whopping 439% since then. But Nvidia is one of many companies benefiting from AI adoption.
Advanced Micro Devices (AMD -0.82%) and Palantir Technologies (PLTR -0.45%) Two more companies are leveraging AI. Let’s take a look at why these two AI stocks could make parabolic moves.
1. Advanced microdevices
NVIDIA’s fiscal 2024 fourth-quarter earnings results, released on February 21, boosted investor confidence thanks to the company’s outstanding AI-powered growth and outlook. It’s not surprising that the stock price rose sharply following this report, but management’s comments on the latest earnings call made it clear that there is room for multiple players to enter the lucrative AI chip market.
Nvidia predicts that the supply of next-generation AI graphics cards will not be sufficient to support demand. It is worth noting that the company’s current generation flagship AI chip H100 already has a waiting period of 9 months to 1 year. So it’s no surprise that Nvidia’s customers are looking for alternatives, as no one wants to be left behind in the AI arms race.
This is where AMD can intervene. The company originally expected AI chip sales to be $2 billion in 2024, but has now significantly increased that estimate to $3.5 billion. AMD could see his AI revenue increase further in 2024. That’s because AMD’s foundry partners are significantly increasing their manufacturing capacity for advanced AI chips.
This was reported by market research company TrendForce. taiwan semiconductor manufacturingThe company, commonly known as TSMC, plans to expand its advanced chip packaging capacity to a range of 33,000 to 35,000 wafers per month by the fourth quarter of 2024. This is more than double TSMC’s monthly production capacity of 14,000 to 15,000 pieces at the end of 2024. last year.
Given that AMD is one of TSMC’s major customers, it would be no surprise that AMD would benefit from the increased packaging capabilities of its foundry partners. After all, AMD’s management said in its last earnings call that it had “made significant progress working with our supply chain partners and secured additional production capacity to support the upside in demand.”
Therefore, we cannot rule out the possibility that AMD will capture an even larger share of the AI chip market in 2024. This could help the company outperform Wall Street expectations in the coming quarters. Analysts now expect AMD’s earnings to rise 37% to $3.64 per share in 2024, and another 50% to $5.46 per share next year.
AMD EPS estimated data for the current fiscal year by YCharts.
The market could well reward AMD stock for such impressive revenue growth, especially if it outperforms expectations by leveraging AI. That’s why investors would do well to buy this semiconductor stock now before it climbs even higher.
2. Palantir Technologies
Palantir Technologies’ stock price has recently risen significantly following the company’s release of its 2023 fourth-quarter financial results on February 5th. Specifically, Palantir stock has soared a whopping 37% since then, indicating that it’s already on a parabolic upward trend.
AI has played a central role in Palantir’s recent rapid growth. Palantir’s management stated in the company’s recent earnings call that demand for its artificial intelligence platform (AIP) is expanding its addressable market and that it is “growing through both new customer acquisition and expansion of existing customers.” “We are promoting it,” he said.
It is worth noting that the adoption of Palantir’s AIP software has definitely accelerated trading activity. Last quarter, the company saw its number of transactions of $1 million or more double compared to the same period last year. Palantir’s aggressive go-to-market strategy of running bootcamps to help customers understand how to integrate AI into their operations has led to strong commercial business growth.
Palantir said it conducted 560 bootcamps last year to support AIP deployments. This brought the company’s fourth-quarter commercial revenue to $284 million, up 32% year-over-year, and outpaced its 20% increase in overall fourth-quarter revenue to $608 million. It explains why. Even better, average 12-month revenue per customer for the top 20 customers increased 11% year over year to $55 million. This suggests that Palantir’s customers are now willing to spend more on the company’s services.
Meanwhile, the total value of Palantir’s future contracts (formally known as remaining performance obligations) rose about 28% from a year earlier to $1.24 billion last quarter. All of these metrics suggest that Palantir’s future revenue pipeline is improving thanks to AI.
Additionally, IDC estimates that the overall AI software market could grow from $64 billion in 2022 to $251 billion in 2027. Among the AI software market, AI platforms are projected to grow at an annual rate of 36% until 2027. Palantir is therefore well-positioned to leverage the field of AI software platforms, as the company is at the beginning of a massive growth curve and has a leading position in this niche, according to IDC.
The catalysts listed above show why analysts expect Palantir’s revenue to grow at an annualized rate of 85% over the next five years. This is significantly higher than the meager 2% annual growth rate seen over the past five years. Therefore, there is a good chance that Palantir stock will continue to soar even after its parabolic breakout, and investors should consider buying without delay.
Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
