The ability of artificial intelligence (AI) to perform problem-solving, visual perception, speech recognition, decision making, and language processing using real-time data has increased its demand from several industries. And with the rapid digitalization of various industries, the applications of AI are expected to increase. The global AI market is expected to grow at a 35% CAGR to $171.02 billion by 2025.

Increasing investments and impressive breakthroughs made in this industry should benefit tech giants Apple Inc. (AAPL) and Alphabet Inc. (GOOGL). 

However, fundamentally weak stocks in this space Palantir Technologies Inc. (PLTR) and C3.ai, Inc. (AI) are not well-positioned to capitalize on the industry tailwinds.  

Stocks to Buy: 

Apple Inc. (AAPL)  

AAPL focuses on designing, manufacturing, and selling smartphones, personal computers, tablets, wearables, and accessories worldwide. The company serves consumers, small- and mid-sized businesses, education, enterprise, and government markets. It sells and delivers third-party applications for its products through the App Store.  

On October 4, 2021, AAPL launched Apple Watch Series 7, featuring the largest and most advanced Apple Watch display and a re-engineered Always-On Retina display with significantly more screen area and thinner borders. The watch also offers an electrical heart sensor and ECG app and a blood oxygen sensor and app. Available for orders from October 8-15, the watch is likely to attract high demand.  

On September 28, 2021, AAPL updated its iWork suite of productivity apps with new features that make it even easier to work with documents on the go. 

AAPL’s total net sales for its fiscal third quarter, ended June 26, 2021, increased 36.4% year-over-year to $81.43 billion. The company’s gross profit came in at $35.26 billion, up 55.4% from the prior-year period. Its operating income has been reported at $24.13 billion for the quarter, representing an 84.3% rise from the prior-year period. AAPL’s net income increased 93.2% year-over-year to $21.74 billion. Its EPS increased 101.5% year-over-year to $1.31. And the company had $34.05 billion in cash and cash equivalents as of June 26, 2021.  

Analysts expect AAPL’s EPS to improve 70.4% year-over-year in the current year to $5.59. It has surpassed consensus EPS estimates in each of the trailing four quarters. The $366.49 billion consensus revenue estimate for the current year represents a 33.5% rise year-over-year. Analysts expect the stock’s EPS to rise at a 19.9% rate per annum over the next five years. Over the past year, the stock has gained 24.5% in price to close yesterday’s trading session at $143.29.   

AAPL’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.  

The stock has a B grade for Quality and Sentiment. Click here to see the additional AAPL ratings for Growth, Value, Momentum, and Stability.  

Of the 47 stocks in the B-rated Technology – Hardware industry, AAPL is ranked #20.    

Alphabet Inc. (GOOGL)

GOOGL, through its subsidiaries, provides web-based search, maps, software applications, mobile OS, consumer content, enterprise solutions, commerce, and hardware products to customers worldwide. GOOGL operates through three segments: Google Services; Google Cloud; and Other Bets. It also provides performance and brand advertising services.

On October 6, 2021, GOOGL’s drone subsidiary, Wing, experimented with launching aircraft from the roof of an Australia-based Vicinity Centres’ shopping mall, only steps from stores that provide goods for delivery. The experiment attempted to bring the company’s drone-delivery model closer in line with how small businesses normally operate. With plans to expand test operations in the U.S., Wing hopes to win public acceptance in the coming months.

Google Nest, GOOGL’s line of smart home products, announced its next-generation Nest Cams and Doorbell on August 5, 2021. As the demand for connected home products and home security increases, the company expects to see good sales of its latest battery-powered Google Nest products that offer enhanced privacy and security, smarter alerts, and wire-free options for installation flexibility.

For its fiscal second quarter, ended June 30, 2021, GOOGL’s revenues increased 61.6% year-over-year to $61.88 billion. The company’s income from operations has been reported at $19.36 billion, representing a 203.3% year-over-year improvement. GOOGL’s net income came in at $18.53 billion, up 166.2% from the prior-year period. Its EPS increased 169.1% year-over-year to $27.26. As of June 30, 2021, the company had $23.63 billion in cash and cash equivalents. Over the past year, the stock has gained 90.8% in price and ended yesterday’s trading session at $2,784.50.   

Analysts expect the stock’s EPS to improve 72.2% year-over-year to $100.91 in the current year. It surpassed the Street’s EPS estimates in each of the trailing four quarters. A $250.72 billion consensus revenue estimate for the current quarter represents a 37.4% rise from the prior-year period. Its EPS is expected to grow at a 24.4% rate per annum over the next five years.

GOOGL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in a proprietary rating system.

The stock has a B grade for Sentiment and Quality. Click here to see the additional ratings for GOOGL (Growth, Value, Stability, and Momentum). GOOGL is ranked #3 of 77 stocks in the Internet industry.  

Stocks to Avoid:  

Palantir Technologies Inc. (PLTR)

PLTR delivers a suite of software applications for integrating, visualizing, and analyzing information, and serves commercial businesses and governments worldwide. The company has built two software platforms: Palantir Gotham and Palantir Foundry. It also offers automotive, financial compliance, legal intelligence, mergers and acquisitions solutions.

On October 5, 2021, PLTR was selected by the U.S. Army’s Program Manager for Intelligence Systems and Analytics to deliver the Army’s Intelligence data fabric and analytics foundation for the Capability Drop 2 (CD-2) program. PLTR’s Gotham platform will field modern data integration, correlation, fusion, and analytic capabilities that prepare the U.S. Army for the next fight against emerging near-peer threats. PLTR is looking forward to a long-term partnership with the Army.

PLTR’s total operating expenses for the fiscal second quarter, ending June 30, 2021, increased 52.5% year-over-year to $430.86 million. PLTR had $2.34 billion in cash and cash equivalents as of June 30, 2021.  

PLTR’s EPS is expected to decline 20% year-over-year in the current year to $0.16. The stock has lost 11.1% in price over the past month to close yesterday’s trading session at $23.73. 

PLTR’s weak prospects are reflected in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system.  

PLTR has an F grade for Value, and a D grade for Stability. It is ranked #13 of 15 stocks in the F-rated Software – SAAS industry. To see additional POWR Ratings for PLTR’s Growth, Value, Momentum, and Sentiment, click here.  

Click here to check out our Software Industry Report for 2021

C3.ai, Inc. (AI)

AI is a software company that focuses on developing, deploying, and operating enterprise AI applications. The company serves the oil and gas, chemicals, utilities, manufacturing, financial services, defense, intelligence, aerospace, healthcare, and telecommunications sectors.

On September 22, 2021, AI launched C3 AI Data Vision, an AI-powered knowledge graph and insight capability that enables near real-time investigation and collaborative data analysis using interactive, intuitive graph network visualizations. This allows organizations to extract valuable insights from their data by interrelating disparate data, machine learning models, and associated processes to provide graphic visualization and analysis. AI is expecting to witness high demand in the coming months.

For its fiscal first quarter, ended July 31, 2021, AI’s non-GAAP loss from operations increased 2474% from the prior-year period to $21.75 million. Its net loss came in at $37.46 million, compared to $150,000 in net income in the prior-year period. Its loss per share came in at $0.37 for the quarter. The company had $273.78 million in cash and cash equivalents as of July 31, 2021.  

AI’s EPS is expected to remain negative in the coming quarters of the current year and next year. Analysts expect the stock’s EPS to decline at a rate of 34.9% per annum over the next five years. The stock has lost 66.3% in price over the past nine months and 12.6% over the past month. It ended yesterday’s trading session at $44.99.  

AI’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which translates to Sell. In addition, AI has a D grade for Growth, Value, Stability, and Sentiment. Moreover, it is ranked #65 of 69 stocks in the D-rated Technology – Services industry.  

In addition to the POWR Rating grades I’ve highlighted, one can see AI’s ratings for Quality and Momentum here. 

AAPL shares were trading at $143.80 per share on Monday morning, up $0.90 (+0.63%). Year-to-date, AAPL has gained 8.88%, versus a 18.45% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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