Betting Big: 3 AI Stocks Primed for a Breakout

Stocks to buy

Technology stocks have made a strong comeback in 2023. For year-to-date, the Standards and Practices (S&P) 500 Information Technology index has surged by 33%. Within the broader technology sector, AI stock have witnessed a massive rally. This is sparking people to seek out AI stocks to buy now.

However, even with multi-year industry tailwinds, it’s unrealistic to expect that stocks continue to move parabolic. We expect intermediate corrections followed by a potentially bigger rally. Some of the best AI stock to buy now have taken a breather after a big surge. I believe this presents a good opportunity to accumulate.

In terms of importance, it’s estimated that the total economic impact of AI to the global economy is likely to be $15.7 trillion by 2030. With impact across sectors, tech stocks are positioned for big gains from AI. Given this outlook, I believe that AI stocks to buy now can deliver multibagger returns in the next five years.

Let’s discuss the reasons to be bullish on these AI stocks.

C3.ai (AI)

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C3.ai (NYSE:AI) stock had surged to highs of $48.9 earlier this year. A sharp correction has ensued with AI stock currently trading at $25.70. I believe that this is a good opportunity to accumulate for a reversal rally. It’s worth noting that AI stock has a short interest that’s currently 36% of free-float. I would not be surprised if there is a massive short squeeze rally.

As an overview, C3.ai is an enterprise AI application software company. For Q2 2023, C3 reported revenue of $72.4 million with subscription revenue accounting for 85% of total revenue.

The company has guided for annual revenue of $295 to $320 million. However, loss from operations is guided at $85 million (mid-range). I believe that as subscription (recurring) revenue swells, C3 will be positioned for margin improvement.

It’s worth noting that for year-to-date, C3.ai has closed 12 generative AI agreements. Furthermore, the company has a pipeline of more than 140 “qualified C3 Generative AI enterprise opportunities.” This provides growth visibility for the coming year and beyond.

Nvidia (NVDA)

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When it comes to the best AI stocks to buy, Nvidia (NASDAQ:NVDA) is the first name that comes to mind. After surging to highs of $502, NVDA stock has corrected to current levels of $410. In my view, gradual accumulation can be considered and investors can average down if there is further downside.

However, there is little doubt that Nvidia has a big addressable market and the company is positioned to benefit from the growth in AI. To put things into perspective, Nvidia’s executive Manuvir Das believes that the AI market is potentially worth $600 billion.

In a recent development, Reliance Industries and Nvidia have partnered to advance AI in India. The company has also partnered with Tata Group to build large scale AI infrastructure in India. The point I want to make is that Nvidia is tapping new markets with big growth potential. Inroads into India will also help Nvidia hedge the risk related to China.

Upstart Holdings (UPST)

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Upstart Holdings (NASDAQ:UPST) stock had recently gone ballistic and traded at highs of $72.5. However, a deep correction followed and UPST stock trades at $27. The price action makes UPST stock like a meme stock. However, the fundamentals are getting better and I am bullish on the business. It’s also worth noting that with short interest of 36%, the stock is among the short squeeze rally candidates.

In terms of business, Upstart is a cloud-based artificial intelligence lending platform in the United States. The objective is to ease access to credit and at the same time, lower the risk for banks. The company already has 2.4 million customers and 100 partner banks. With a total addressable market of $4 trillion in annual loan origination, Upstart has ample room for growth.

For Q2 2023, Upstart reported revenue and adjusted EBITDA of $135.8 million and $11 million respectively. An important point to note is that the contributing margin has improved by 2,000 basis points on a year-on-year basis to 67%. The company also achieved positive cash flow in Q2. With financial positives and a big addressable market, I remain bullish on UPST stock.

On the date of publication, Faisal Humayun 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.

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