Artificial intelligence (AI) stocks have been some of the top-performing assets, and some of the largest companies have reached $1 trillion market caps. All of the "Magnificent Seven" stocks are deeply invested in AI as well. The technology is still in its early stages, and investors may want to look into the industry for the next $1 trillion stock.
While there are several candidates, two AI stocks stand out due to their revenue growth, outlooks, and long-term opportunities.
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Palantir's annual recurring revenue continues to compound
Corporations with annual recurring revenue models present some of the best opportunities for investors to multiply their money. Palantir Technologies (PLTR +2.60%) has certainly lived up to expectations with more than 600% gains over the past five years.
The company's first wave of growth came from government contracts, as its software was critical for counterterrorism. Then, Palantir expanded its services to commercial businesses that can build custom AI agents using Palantir's software. Customers use Palantir's software to assemble large quantities of data, simulate scenarios, and make well-informed decisions.
NASDAQ: PLTR
Key Data Points
Palantir's Q3 results point to a rapidly growing star. Revenue increased by 63% year over year, with net income more than tripling year over year for the growth stock. Palantir received a significant boost from U.S. commercial businesses, with that part of its business more than doubling.
Surging commercial revenue growth becomes even more impressive when investors recognize that it's driven by annual recurring revenue. Some of these same customers will have to pay Palantir more money next year if their data needs evolve. Palantir will also continue to attract new customers, further diversifying revenue streams and leading to more upside.
Palantir has a market cap above $400 billion. While investors shouldn't expect the company to repeat its 600% gain over the past five years, the fact that Palantir has so much momentum makes a $1 trillion valuation achievable. If Palantir manages to double again like it did this year, it would be on the cusp of a $900 billion valuation.
As AI demand picks up and more companies turn to Palantir for its leading AI software, revenue and profits should continue to grow. In the meantime, Palantir boasts a net profit margin that is above 40%.
Advanced Micro Devices is gaining ground on AI chipmakers
AI chipmakers have been some of the most successful companies amid this industrial shift. Nvidia is the most valuable publicly traded corporation and Broadcom surpassed a $1 billion valuation.
Advanced Micro Devices (AMD +0.88%) is finally starting to receive some of the love and may end up with a $1 trillion valuation in a few years. The chipmaker has struck deals with many tech companies and delivered 36% year-over-year revenue growth in Q3. Net income surged by 61% year over year as well.
NASDAQ: AMD
Key Data Points
However, that isn't the most exciting catalyst that resulted in Advanced Micro Devices stock gaining more than 70% this year. The chipmaker has reactivated investors' imaginations with its stated objective of leading the $1 trillion compute market and achieving a 35% compound annual growth rate (CAGR) for several years. It also expects a long-term 60% CAGR for its data center business.
Advanced Micro Devices has put together a strong year, but it hasn't benefited as much from the AI boom as others. Its stock is up by 115% over the past five years, while Nvidia and Broadcom have five-year gains of 1,220% and 713%, respectively.
Advanced Micro Devices' market cap has surged to almost $350 billion. If the stock manages to triple within the next five years, it will have a $1 trillion valuation. If the AI chipmaker continues to accelerate growth rates while boosting margins, it can end up enjoying a rally just like Nvidia and Broadcom did a few years ago.
