The rise of artificial intelligence (AI) has been the first big wave for AI, leading to massive revenue increases for companies like Nvidia. However, the second wave of AI could come from the software world, as organizations start implementing AI into their businesses.
Let’s take a look at three stocks that could continue to benefit from an AI software boom.
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1. Palantir Technologies
Perhaps stock investors are most excited when it comes to AI Palantir Technologies (NASDAQ:PLTR). While some major tech companies are rushing to create the best AI models, Palantir is taking a different approach. In fact, management has said that it thinks AI models will eventually become quite similar, and as such will become commoditized.
Instead, Palantir aims to become the AI operating system for organizations by focusing on the applications and workflow layers of AI. By mapping things like datasets and models to their real-world counterparts, the company aims to help customers use AI to solve real-world problems.
Palantir has attracted customers by using AI workshops, called bootcamps, to demonstrate how its AI platform can address potential use cases while helping with training. This has led to an increase in both the number of commercial customers and sales in the US.
The next growth driver for the company will be taking these commercial customers from proof-of-concept work to production. Although the company’s growth is accelerating, this has the potential to take it into overdrive. It should also benefit from the fact that the US government, the company’s largest customer, is also starting to embrace AI.
While the stock has a lot of potential, it is pricey and currently trades at a price-to-sales (P/S) multiple of 41 times analyst estimates in 2025. That’s Software-as- Service (SaaS) from a few years ago for stocks with similar growth, so Palantir won’t have much room for error.
2.Microsoft
Microsoft (NASDAQ: MSFT) was one of the first major tech companies to embrace AI when it significantly increased an earlier investment in OpenAI and partnered with the AI startup. Early on, the company saw the biggest benefit in its cloud computing unit Azure, which has grown rapidly as it helps customers create their own AI models and copilots.
However, the company also has major opportunities within its software business. GitHub, a platform that helps developers create code, has been one of the fastest growing software segments since the launch of the GitHub AI Copilot, which will introduce and help programmers complete coding.
However, the bigger opportunity lies with the Microsoft 365 Copilots. These AI assistants can do things like prioritize and summarize emails and meeting notes, tell managers what tasks are completed or still outstanding, share documents with employees, create PowerPoint presentations in natural language, and even let programmers use the Python programming language in Excel via only natural language cues. Employees are still in the early stages of learning and using this technology, but it can save a lot of time and create a lot of efficiency.
At $30 per month per business user, this should be a nice source of revenue for Microsoft. The company said last quarter that 70% of Fortune 500 have used Copilots, but there is likely to be significant expansion opportunity with these customers as more departments adopt the technology.
The stock trades at a price-to-earnings (P/E) ratio of less than 33 times analyst estimates for this fiscal year and appears fairly valued.
Image source: Getty Images.
3. AppLovin
While the company may have a quirky name, AppLovin‘S (NASDAQ: APP) Its fortunes changed completely with the launch of its AI-powered adtech solution Axon-2. Gaming app companies use the software platform to attract and better monetize users. Using predictive machine learning, the platform has become a hit with customers.
Since Axon-2 launched in summer 2023, revenues from AppLovin’s software platform have skyrocketed, with the segment seeing 66% revenue growth last quarter to $835 million. The company’s gross margins have also grown nicely, including an improvement of as much as 820 basis points year over year to 77.5%. That is doubly good, because not only is turnover growing rapidly, but a larger part of that turnover also flows as profit to the operating result.
The company believes it can achieve steady growth of 20% to 30% in software platform revenue from gaming customers in the coming years through self-learning and market growth. Apparently, the more the platform is used, the more it learns, and the better it becomes at targeting gamers.
However, the big opportunity for AppLovin extends beyond its core gaming customers. The company has already tested Axon-2 with e-commerce customers and believes it can make a meaningful contribution to this industry by 2025. If it’s true, that’s a great opportunity.
While the forward price-to-earnings ratio is more than 40.5 times analyst estimates in 2025, the company’s price-to-earnings-growth (PEG) ratio is just 0.65. A PEG ratio of less than 1 is generally considered undervalued, and growth stocks often have multiples well above 1.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends AppLovin, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
