Buying solid companies at attractive valuations and holding them for a long time is a tried and tested way of making money in the stock market. The strategy allows investors to benefit from secular growth trends and also take advantage of the power of compounding.
Artificial intelligence (AI) has been one of the hottest trends that investors have hopped on in the past two years. The adoption of this technology has been growing rapidly thanks to the productivity and gross domestic product (GDP) gains that it promises. Not surprisingly, companies and governments have been investing heavily in building AI infrastructure and deploying AI applications.
Below are two names that have received a nice boost thanks to the spending on AI hardware and software. Here’s why investors looking to add top AI stocks to their portfolios this month can consider buying them right away.
Marvell Technology(NASDAQ: MRVL) stock registered healthy gains of 48% on the market in the past year. The good part is that investors who missed this impressive rally are still considering a stock trading at just 40 times forward earnings. That multiple may seem on the expensive side at first considering that the tech-laden Nasdaq-100 index has a price-to-earnings ratio of 34 But a closer look at the chipmaker’s earnings growth rate will show that it can easily justify that valuation.
Consensus analyst estimates project Marvell’s earnings will grow in the low single digits in the recently concluded fiscal year 2025 to $1.56 per share. However, as the following chart shows, its bottom-line growth is expected to accelerate big-time in the current and the next fiscal year.
Data by YCharts.
The red-hot demand for Marvell’s custom processors and networking chips used in AI data centers should play a central role in boosting its bottom line going forward. For instance, Marvell’s data center revenue nearly doubled in the third quarter of fiscal 2025 to $1.1 billion. This offset the steep declines in the company’s other segments, helping Marvell record a 7% jump in its overall revenue.
Marvell got more than 72% of its revenue from the data center business in fiscal Q3, up remarkably from 39% in the year-ago period. The segment’s robust growth is here to stay as the demand for Marvell’s custom AI processors ramps up. Management remarked on the company’s December earnings conference call:
“These strong results were driven by a significant step-up in our custom AI silicon ramp, as our customers saw increasing demand for the differentiated capabilities offered by these new custom AI chips. We are seeing strong custom AI demand continue into the fourth quarter and have secured supply chain capacity to support our customers’ growth forecast.”
Marvell has two customers for its custom AI chips currently. Management’s comments indicate that these customers have been buying more chips from the company. Amazon, for instance, expanded its relationship with Marvell last quarter. The tech giant’s Amazon Web Services cloud division has signed a five-year agreement with Marvell for multiple products that include custom AI processors and networking chips.
Moreover, Marvell points out it is on track to add a third large-scale customer for its custom AI chips along with the additional programs that its existing customers are expected to move into production. All this indicates that Marvell’s data center business has room for more growth. After all, the largest player in the custom processor market believes that the addressable market for custom AI processors and networking chips could be worth between $60 billion and $90 billion in three years.
Marvell is the second-largest player in this segment with an estimated market share of 13%, a number that the company wants to increase to 20%. If Marvell indeed achieves a 20% share of the custom AI processor market thanks to its expanding relationships and new customers, its data center revenue could jump to $12 billion in three years (assuming the end market generates $60 billion at that time).
That would be more than double the revenue the company has generated in the past 12 months. Investors, therefore, can consider buying Marvell Technology right away as it has the potential to deliver more upside.
While Marvell Technology can help investors capitalize on the massive investments in AI infrastructure, C3.ai(NYSE: AI) will allow them to benefit from the fast-growing adoption of AI software. After all, spending on generative AI software is expected to jump by a whopping 14 times between 2023 and 2028, hitting nearly $40 billion at the end of the forecast period, according to IDC.
C3.ai already benefits from this growth opportunity. The company provides more than 130 ready-to-use enterprise AI applications that can be deployed in multiple industries ranging from financial services to government utilities, oil and gas, and defense and intelligence, among others. It also offers development tools and an AI platform on which customers can develop and deploy custom AI applications.
The company’s recent quarterly results make it clear that the demand for its AI software solutions is picking up. C3.ai’s revenue in the first six months of the ongoing fiscal year 2025 increased 25% year over year compared to just 14% growth it reported in the same quarter last year. Its revenue growth has accelerated impressively in each of the last six quarters.
The company has adopted a smart strategy of making its AI software solutions visible to a large audience by tying up with major cloud computing providers such as Microsoft, Alphabet, and Amazon. This partner network is enabling C3.ai to close more deals. For instance, C3.ai saw a year-over-year increase of 180% in the number of contracts closed through Google Cloud in fiscal Q2.
It has also strengthened its partnership with Microsoft, a move that could help it reach more customers looking for generative AI software solutions. As such, it is easy to see why C3.ai’s revenue growth is expected to remain robust over the next couple of fiscal years following an estimated jump of 25% in the current one to $388 million.
Data by YCharts
A big reason why investors can consider buying C3.ai hand over fist right now is its valuation. Trading at 12 times sales, C3.ai is relatively cheap when you consider that Palantir Technologies, another big name in the AI software space, has a sales multiple that’s nearly 9 times higher. Moreover, Palantir isn’t growing 9 times faster than C3.ai.
While C3.ai’s revenue increased 29% year over year in the last reported quarter, Palantir reported a 36% increase in Q4 2024. Investors, therefore, are getting a terrific deal by comparison on C3.ai stock right now, and they may not want to miss this opportunity as a strong set of results from the company later this month could send its shares higher.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Palantir Technologies. The Motley Fool recommends C3.ai and Marvell Technology and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
2 Magnificent Stocks That Are Screaming Buys in February was originally published by The Motley Fool
