Given the rapid rise in AI relevancy, many have argued that AI stocks are currently in a bubble similar to the Dot-Com bubble in the 2000s. However, the main difference between the two eras is that most dot-com companies weren’t actually producing any real products or services. On the other hand, AI stocks have legitimate revenue-driving products. And, they have the ability to boost the productivity and efficiency of other strong existing businesses.
So are all AI stocks worth buying right now? Definitely not. In a bubble-like environment, many stocks will be overvalued. Currently, AI is the tide that is raising all boats.
Let’s examine the three best AI stocks to buy this month.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) is an American technology company that was founded by its current Chief Executive Officer (CEO) Mark Zuckerberg. It’ best known for apps like Facebook, Instagram and WhatsApp, which have over 3.2 billion daily active users. In April, 55 of the 62 analyst recommendations were a buy or strong buy rating for the stock. The average price target is $480.13 with a street-high target of $552.50.
At the center of Meta’s AI research is its Llama 3 large language model. This is Meta’s answer to OpenAI’s GPT and Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOGL) Gemini platform. The main difference is that Llama 3 is completely open-source and free for both commercial and personal users. As META moves to integrate its intelligent assistant into many of its products, investors should expect Meta’s market dominance to continue.
As for its financials, although Meta had a quick meltdown after its recent earnings, its recovery has swiftly been going underway. Shares are trading at a reasonable 8.3x sales and 22.8x forward earnings. Revenue-wise, Meta’s ten-year revenue CAGR of 32% puts it an edge above its peers like NVIDIA (NASDAQ:NVDA) and Amazon (NASDAQ:AMZN).
Snowflake (SNOW)
Founded in 2012, Snowflake (NYSE:SNOW) is an American cloud-computing company. The stock held its IPO in September 2020 in what was one of the most anticipated debuts in Wall Street history. Even still, Snowflake has a ton of potential upside with a street-high price target of $600.00. Its average target of $219.71 represents a nearly 40% upside from its current price.
So how is Snowflake an AI stock? Snowflake’s data warehousing and analytics platform is essential to building AI solutions for specific companies and businesses. Think of it as a pick-and-shovel play for AI rather than a business that directly develops AI technology. Also, SNOW has become well known for its large language model called “Arctic”. It helps deliver enterprise solutions like coding and development with breakthrough efficiency.
Recently, its stock has seen a sell-off resulting from a combination of a weak forecast and overall uncertainty surrounding its sudden change in CEO. At these depressed prices, shares are now trading at 18.6x sales, a historically cheap point for SNOW. Assuming a reversion to the mean, now is a great opportunity to take advantage of the recent negative sentiment around Snowflake.
Palantir (PLTR)
Palantir (NYSE:PLTR) is an American data analytics firm that was founded in 2003 and specializes in empowering enterprises with its big data analytics. Wall Street analysts have a wide range of price targets for PLTR. These targets range from as low as $5.00 to as high as $35.00 with an average price target of $23.33.
This company is well known for its enterprise software platforms that help to digest and analyze large sets of data. Palantir recently partnered with Oracle (NYSE:ORCL) to provide AI solutions to both commercial and government clients. Moreover, CEO Alex Karp recently stated that demand for its AIP AI-based platform has been unprecedented. PLTR’s commitment to signing new contracts has helped it establish itself as an emerging leader in the AI data analytics sector.
Furthermore, Palantir’s valuation has always been the bear thesis for the stock. Even with the recent growth, shares trade at 24x sales and 75x forward earnings. Nonetheless, Palantir has finally become profitable and has seen a sharply rising revenue CAGR over the past three years. So, with its emergence as a major AI player, Palantir could be on the verge of a hyper-growth phase in the coming years.
On the date of publication, Ian Hartana and Vayun Chugh did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
