Unless you live under a rock, you have probably heard about artificial intelligence (AI) -- a technology megatrend that could add trillions to the global economy by boosting labor productivity and product enhancement. While most of the investor attention has gone to hardware leaders like Nvidia, software and product companies like Palantir Technologies(NYSE: PLTR) and Symbotic(NASDAQ: SYM) could benefit from this opportunity as they implement AI in their fields. Let's discuss why they could make you rich.
Since its direct listing in 2020, Palantir has underperformed the market because of challenges like overvaluation. And while it has fallen around 50% from its all-time high of $39, a forward price-to-earnings (P/E) multiple of 66 means shares still aren't cheap. That said, a pivot to AI could help this unique technology company finally live up to its high price tag.
Palantir is a software company that helps clients analyze and manage their data. AI is well suited to this task because it can automate workflows and turn vast amounts of information into real-time actionable insights. To take advantage of this, Palantir has developed its new Artificial Intelligence Platform (AIP), designed to combine its legacy machine learning tools with large language models (LLMs) -- AI algorithms designed to generate content using large datasets.
Palantir's high exposure to the public sector (over 80% of third-quarter revenue) gives it an economic moat. Government contracts require a high level of trust and confidentiality that rivals can't easily replicate. Palantir gained this privileged position early -- with Bloomberg reporting that it was partially funded by the Central Intelligence Agency (CIA).
While Palantir's cozy relationship with the government can bring it some baggage and controversy, it also gives it access to some of the biggest clients in the world. In September, the company won a $250 million contract with the U.S. Army for AI-related research and experimentation. And this could be the first of many similar AI deals over the coming years.
With shares up almost 200% year to date, Symbotic is one of the few companies that has come close to Nvidia's (up 245%) performance this year. The company can continue its bull run as it unlocks the synergies between artificial intelligence technology and robotics.
Founded in 2007 and going public through a special purpose acquisition company (SPAC) in 2022, Symbotic builds and operates automated warehouse systems. This can involve creating robots that perform complex tasks more quickly and efficiently than humans. But while Symbotic's business is largely hardware-dependent, software could become increasingly important as it incorporates AI capabilities into its systems. The potential is massive.
AI can enable robots to solve problems as they arise based on their training data and experiences instead of just following programmed instructions, improving productivity and reducing downtime. Symbotic's tech earned a big vote of confidence from the major retailer Walmart, which owns 11% of its shares and uses its systems to automate 42 of the retail giant's U.S. regional distribution centers.
Unlike Palantir, Symbotic is not yet consistently profitable. But with a price-to-sales (P/S) multiple of 1.97, the stock is cheaper than the S&P 500 average of 2.47. The relatively low valuation gives investors a reasonable entry point to bet on its long-term potential.
More risk for more reward?
When it comes to artificial intelligence, many investors have focused on the infrastructure side -- where chipmakers build AI hardware and cloud computing giantsprovide storage and data management. But software companies will be the ones who expand AI's use cases across industries and power the technology's long-term expansion. Palantir and Symbotic are two great ways to bet on this potentially lucrative opportunity.
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