In the midst of a bullish stock market, two Motley Fool contributors, Keith Noonan and Lee Samaha, have identified two undervalued AI stocks with significant growth potential. Palantir Technologies and Trimble, both operating in the technology sector, have caught the attention of investors due to their promising financial performance and future prospects.
Palantir Technologies, a leading analytics and intelligence software company, experienced a temporary setback in December 2022 when its stock price dropped to around $6 per share. However, it has since rebounded impressively, with an 86% increase in share price this year alone. While trading at 90 times this year’s expected earnings, Palantir’s stock is still 18% below its peak valuation, suggesting room for further growth. The company has consistently delivered profits since 2023, and its sales growth has recently accelerated. In the second quarter, Palantir reported a 27% year-over-year increase in sales and an 80% surge in adjusted earnings per share. Notably, its commercial segment, driven by strong demand for its Artificial Intelligence Platform (AIP) software suite, is poised to become the company’s largest revenue generator. With sales to U.S. commercial customers growing at an impressive rate of 55% year over year, Palantir’s private-sector growth is outpacing its public-sector business. The company’s overall growth engine appears robust, making Palantir stock an attractive investment opportunity.
Trimble, a workflow technology company, has faced challenges in certain end markets this year, particularly in transportation due to overcapacity in the freight market. However, its core architects, engineers, construction, and owners (AECO) segment has shown resilience, with an 18% year-over-year growth in annualized recurring revenue (ARR) in the second quarter. Trimble’s solutions, which optimize operations through advanced data analytics, have proven valuable to customers, resulting in increased recurring revenue. The company’s focus on selling software and subscription services on a recurring basis has led to growing profit margins and cash flow conversion. With plans to incorporate AI capabilities into its products, Trimble aims to add even more value for its customers, making it an integral part of their daily workflows. The company expects to grow its ARR by 11% to 13% in 2024, with the potential for further expansion in 2025. Trading at a significant discount compared to its all-time high, Trimble stock presents an attractive investment opportunity.