Where are the AI opportunities beyond Nvidia?

Nvidia may be getting all the AI attention of late, but there are plenty of other opportunities to play the trend beyond chipmakers. Palantir and C3.ai are two companies that could be long-term winners of rising demand for software for enterprise applications, such as water management and oil asset maintenance.

  • Palantir and C3.ai’s software is being utilised in the engineering, oil and water industries.
  • Software companies will generate $8 revenue for every dollar of demand for AI hardware, according to Frank Downing of ARK Invest.
  • The First Trust Nasdaq Artificial Intelligence and Robotics ETF is up 18.5% in the past six months.

Of late, the artificial intelligence (AI) hype machine has been focusing on Nvidia’s [NVDA] first quarter (Q1) results.

The chipmaker’s co-founder and CEO Jensen Huang said in the earnings release that there are currently two trends dominating the computer industry: “accelerated computing and generative AI”. 

“A trillion dollars of installed global data centre infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process,” said Huang.

The Nvidia share price jumped 24.4% following the earnings on 24 May and the company’s market cap broke the $1trn mark on 30 May, becoming the first US chipmaker to do so, though it closed slightly below this by the end of the trading week.

While Nvidia is arguably leading the way in the AI race — thanks to the fact it builds and supplies many of the specialised chips that are required to power AI programmes — the big hitters have been talking up their AI capabilities and use cases at any given opportunity. Alphabet [GOOGL], Amazon [AMZN], Apple [AAPL], Meta [META] and Microsoft [MSFT] mentioned AI a combined 190 times on their recent Q1 earnings calls, up from 36 times on their Q1 2022 earnings calls, according to Statista.

The mega caps will probably surpass this again when they next report in July and August, but for investors interested in the AI theme, there are opportunities elsewhere.

Palantir helps optimise water management

Data analytics firm Palantir [PLTR] has been seeing huge demand for its artificial intelligence platform (AIP) and last week announced it will be used to expand a partnership with engineering outfit Jacobs Solutions [J].

Jacobs president of divergent solutions Shannon Miller said in a release that the company was “already deploying AI to optimise the entire water life cycle”, but AIP will help its clients make smarter decisions “creating safer and more sustainable water and sewage systems”.

Jacobs spoke at Palantir’s first customer conference, AIPCon, held on 1 June. Other customers that presented included Cisco [CSCO] and HCA Healthcare [HCA].

C3.ai [AI] was another company in focus last week, as its shares tumbled 13.2% following its Q4 2023 earning release on 31 May.

C3.ai, which has been “at the vanguard of the enterprise AI market for over a decade”, according to CEO Tom Siebel, disappointed investors with its sales forecast. The share price has also been under pressure following a short seller report on 6 March.

C3.ai enables predictive maintenance

Despite near-term volatility in the C3.ai share price, the company is bullish on its outlook, even titling its recent earnings release ‘Generative AI changes everything’.

In the three months to 30 April, C3.ai closed 43 agreements, including 19 pilots, adding that the number of enterprise opportunities had more than doubled year-over-year.

The company is expecting growth to build momentum as pilot projects become full-blown ones. In time, this will enable it to “gain market share, attain sustainable non-GAAP profitability, and establish a market-leading position globally in enterprise AI”.

“While it will be a bumpy road — we believe [C3.ai] has turned a corner and is ready to now capitalise on the $800bn AI transformational opportunity over the next decade front and centre,” tweeted Wedbush analyst Dan Ives following the earnings release.

C3.ai’s software is used by oil major Shell [SHEL.L] for predictive maintenance. More than 10,000 pieces of equipment are monitored around the clock to identify problems before they occur, minimising operational downtime and extending the life cycle of assets. The US Air Force has also partnered with C3.ai to maintain aircraft.

AI software will even disrupt the mining industry

AI software is poised to revolutionise nearly every industry, from manufacturing to pharmaceuticals to mining. For example, Anglo-Australian miner BHP [BHP.L] is combining real-time data with AI recommendations from Microsoft’s Azure platform to enhance the efficiency of its copper operations.

According to Ives, Palantir, IBM [IBM], Oracle [ORCL] and Salesforce [CRM] are some of the players “aggressively building out [their] product portfolio and AI functionality both organically [and] through M&A over the next year”.

Ives recommends keeping an eye on Salesforce’s AI Day on 12 June, at which CEO Marc Benioff is expected to outline the SaaS company’s vision.

AI hardware demand to grow software revenue

While Nvidia will remain the AI chip leader, competition will likely intensify as companies pledge more capital and resources to the AI trend. Not only this, but increased spending on AI hardware to power next-generation products is expected to drive software revenue growth higher.

According to ARK Invest director of research and next generation internet Frank Downing, software companies will generate “$8 in revenues for every dollar of demand for AI hardware”.

“In what could be ‘winner take most’ opportunities, those focused on activating AI with strong proprietary data and distribution advantages should be best positioned to capitalise on AI use cases and reap the dramatic productivity gains associated with the promise of generative AI,” wrote Downing in a research note published in reaction to Nvidia’s earnings.

Funds in focus: First Trust Nasdaq Artificial Intelligence and Robotics ETF

The ARK Next Generation Internet ETF [ARKW] offers exposure to companies developing or enabling AI applications with their software, such as Microsoft and Palantir, within the broader theme of the future of technology infrastructure. The fund is down 2.8% in the past year, but up 23.5% in the past six months.

The WisdomTree Artificial Intelligence UCITS ETF [WTAI.L], which has C3.ai among its top 10 holdings, is weighted heavily in favour of the information technology (IT) sector (85.93%) as of 2 June. Consumer discretionary, financials, healthcare, communication services, industrials and consumer staples all have a single-digit allocation. The fund is up 3.4% in the past year and up 22.9% in the past six months.

The First Trust Nasdaq Artificial Intelligence and Robotics ETF [ROBT], which has C3.ai as its top holding as of 2 June, offers broader exposure. IT makes up 60.71% of the portfolio and industrials 21.22%, while consumer discretionary accounts for 10.14%. Healthcare, communication services, real estate and consumer staples all have allocations of 5.16% or lower. The fund is up 7.5% in the past year and up 18.5% in the past six months.

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