Pushing for a profit

The first one is C3.ai (NYSE:AI). It’s a software company that provides AI and machine learning solutions for enterprise businesses, with a particular focus on large-scale, industrial, and government sectors.

Over the past year, the stock is down 14%. Part of this is because the business remains unprofitable, with a high cash burn rate of tens of millions of dollars per quarter. Although this remains a risk going forward, I’m not overly concerned. The business is growing, as shown by the 29% revenue increase in Q2 results versus the same period last year.

Subscription growth (a key metric for the company) rose by 22% versus last year, indicating to me that it’s only a matter of time before the firm flips to making a profit. Recently, it has been shifting from long-term contracts to a usage-based model (consumption-based pricing), aiming to drive broader adoption. I think this is a good move that bodes well for the future.

Let’s not forget that the AI software market is experiencing rapid growth. The business is well-positioned as a first mover in enterprise AI, especially with its focus on regulated and high-complexity industries. Yet due to the losses, I think many investors have overlooked it and I think this has made it undervalued.

The voice of success

Another option that I think is worth considering is SoundHound AI (NASDAQ:SOUN). It specialises in voice AI and natural language understanding, offering conversational AI solutions for everyone from car companies through to smart devices.

It already has some high-level partnerships, such as with Mastercard and Hyundai, but is currently trading around $11. Even though it’s up 164% over the past year, it’s down 44% in 2025. The sharp drop in Q1 came after Nvidia revealed it had fully exited its investment in the business.

Given it was trading above $20 at the start of the year, I think it’s good value at current levels. The exit from Nvidia doesn’t mean the business has peaked, as it has continued to deliver strong financial results since then.

One risk is the high competition, such as with Siri and Alexa from other large tech companies. Yet despite this, there’s growing demand in this niche part of AI. SoundHound is the go-to specialist in this area, which leads me to think that it could stabilise and eventually rally back to the January highs.

I like both AI stocks and think investors can consider them when it comes to trying to find good value in a space where some shares are overhyped.

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Revolutionising industries

C3.ai (NYSE:AI) is one of the most interesting companies helping other businesses to level up their operations with AI integrations. It has clients in fields including aerospace, financial services, healthcare, and even the US Air Force. Its customers include several Fortune 500 firms.

The company offers a range of software solutions, applications, and customisable AI tools to empower businesses. Not only does it make data analysis and business or security intelligence easier, but it also can fully tailor its services to meet the particular needs of a certain enterprise.

Many readers may have heard of a company called Palantir, and the two firms are not very different. Palantir has more dominance in the market right now, but what C3.ai has is a better valuation.

Investing early

The tricky thing with making great investments is that for the massive growth I really have to buy at the early stages. However, that comes with more risk. There’s a lot of luck involved for a company to reach and then sustain itself at the top of an industry.

That’s why I think it’s important to diversify and have most of my money in large, well-established companies. With a smaller amount of my total assets, I’m happy to take a bit more risk, and smaller might be best for an investment in C3.ai at this stage.

The primary reason I say this is that the company has yet to report profitability. That’s not a problem for me because I understand how to assess a company that’s in the earlier stages. However, it always means there’s a bit more uncertainty.

Beyond AI: robotics

Many investors want to know what the next field will be that’s going to create explosive growth in the stock market. I bet that it will be robotics, which is where AI will begin to have more noticeable effects on the physical economy. At the moment, AI is really affecting the transfer and efficiency of information. Just imagine when it begins to radically transform manufacturing, driving, cleaning, and more.

That’s why I’m hunting down shares in the robotics industry right now. One of my favourite places to invest at the moment that I think could lead to massive success is robotic surgery. The leader in that field is Intuitive Surgical, and I’m likely to be a shareholder of that firm in the next few months.

Four great choices

I believe all of these companies are compelling, and here’s a list of all of the ones I’ve mentioned. I’ve ranked them based on how attractive I find the investments at this time overall. I don’t own any of them yet, but I could see myself owning all of them soon, particularly Nvidia and Intuitive Surgical.

1. Nvidia
2. Intuitive Surgical
3. Palantir
4. C3.ai

The post What are the best AI stocks to buy for explosive growth potential? appeared first on The Motley Fool UK.

So is now the to buy AI stocks for my portfolio? I’ve considered three of the most popular.

Nvidia

The recent explosion in the popularity of AI stocks will require two key things going forward; data and hardware. For the latter, there are several companies to consider, one being Nvidia (NASDAQ:NVDA). The company has seen tremendous volatility in recent years as the world explored remote working, the metaverse, and now AI.

The chip shortage of 2020 slowed progress. However, the company expects to see earnings growth of 27% in the next year. With a return on equity (ROE) of 49%, Nvidia is using investor cash tremendously well. The question will be how long this can continue.

As with most growth stocks, Nvidia has a lot of this growth priced its into stock price. By considering the future cash flow of the company using a discounted cash flow model, the fair value of $99 is notably below the current price of $282. By comparing the price-to-earnings (P/E) ratio of 26 times with the sector average at six times, Nvidia is tremendously expensive.

Palantir

When it comes to investor enthusiasm, there are few companies more supported than Palantir (NYSE:PLTR). The company provides software systems for intelligence communities and develops AI systems for organisational decision making. Palantir is a favourite among investors in disruptive technology, but increasingly restrictive economic conditions have impacted the stock.

With many companies yet to turn profitable, rising interest rates can make investment challenging to justify. However, a price-to-sales (P/S) ratio of 8.4 times, compared to the sector average of 9.2 times, indicates that Palantir could be undervalued.

Palantir expects tremendous earnings growth, with 62% forecast for the next year. The software space has fewer potential headwinds than developing hardware, but the future of the stock remains uncertain.

C3.ai

With the enviable ticker of AI, C3.ai (NYSE:AI) had a stunning performance in early 2023. Shares in the company soared as investors followed the AI stocks craze. This has since retreated as concerns surfaced about the company’s financial reporting.

C3.ai provides software and also operates a platform that customers can use to develop their own applications. As with Palantir, the company is not profitable, and expects growth of 9% below the industry average of 20%. It has sustainable fundamentals, but does not seem a huge opportunity.

It is also not an investment for the faint-hearted, when considering its volatility, which is higher than 90% of US stocks and could mean a move of 20% in any given week.

However, with speculative companies there is opportunity. C3.ai has sufficient cash to operate for a year without income and a year can be a long time in AI.

Am I buying?

AI stocks are clearly going to be an exciting area for the next few years. As developments in the field impact our lives, there will be opportunities. However, from an investment perspective, I think the sector is overpriced. Share prices will need to come down before I buy AI stocks.

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