This has been a difficult year for semiconductor stocks, which is evident from the 23% decline in the PHLX Semiconductor Sector index so far. Investors have decided to book profits and preserve capital owing to the uncertainty caused by the tariff-fueled trade war. This, in turn, has led to an increase in the possibility of a global recession.

However, recent developments suggest there could be a reason for investors to remain optimistic. These include the 90-day pause in reciprocal tariffs to allow time for negotiations between the U.S. and its trade partners, the exemption of duties on imports of semiconductors, computers, processors, and some other electronic items, and news that the U.S. and China are engaged in trade negotiations.

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Favorable trade deals between the U.S. and its trading partners could bring the stock market out of the rut it is in. Moreover, disruptive trends such as artificial intelligence (AI) are here to stay thanks to the massive productivity gains they can deliver in the long run.

That's why now would be a good time for savvy investors to take a closer look at a couple of top semiconductor stocks that have pulled back of late but have the potential to fly higher in the next year -- and in the long run thanks to the massive AI-driven opportunity they are sitting on.

1. Broadcom

Shares of Broadcom (NASDAQ: AVGO) have retreated 28% in 2025, and that drop doesn't seem justified in light of the company's remarkably solid growth in recent quarters. Not surprisingly, analysts are upbeat about Broadcom's performance on the stock market in the coming year. The shares carry a 12-month median price target of $250 as per 44 analysts covering the stock, which points toward potential gains of 50% from current levels.

Also worth noting here is that 89% of analysts covering Broadcom recommend buying it. That isn't surprising considering the impact of AI on the company's business. The company's AI revenue increased an impressive 77% year over year in the first quarter of fiscal 2025 (which ended on Feb. 2) to $4.1 billion.

That was faster than the 25% growth in the company's overall quarterly revenue, which landed at $14.9 billion. AI, therefore, is now producing 27% of Broadcom's top line. Importantly, AI chips are likely to move the needle in a bigger way for Broadcom going forward as the company's custom processors are in tremendous demand from cloud hyperscale customers.

Broadcom is expecting a 44% year-over-year increase in its fiscal Q2 AI revenue to $4.4 billion. However, don't be surprised to see the company doing better than that as more customers are expressing interest in its custom AI chips. Each of Broadcom's existing three hyperscale cloud customers is expected to deploy AI server clusters powered by more than 1 million of its custom AI chips, known as XPUs, over the next three years.

Management says that "these three hyperscale customers will generate a Serviceable Addressable Market or SAM in the range of $60 billion to $90 billion in fiscal 2027." Considering that Broadcom is in the final stages of the development of custom AI accelerators for two more hyperscale customers, its AI-driven addressable market should ideally become bigger.

Even better, Broadcom's AI-focused customer lineup is about to get bigger as "two additional hyperscalers have selected Broadcom to develop custom accelerators to train their next-generation frontier models." So, the company could eventually sell its AI chips to a total of seven cloud hyperscale companies in the future.

That could open up the possibility for exponential growth in the company's AI revenue from fiscal 2024 levels of $12.2 billion. Its addressable market from the current three customers is quite huge already. All this explains why analysts are expecting Broadcom's earnings to jump by an impressive 36% in the current fiscal year to $6.64 per share.

However, Broadcom delivered stronger earnings growth of 45% in fiscal Q1, suggesting that it has the potential to beat Wall Street's expectations, especially considering the new AI customers that it is bringing on board. So, investors looking to add a top AI stock to their portfolios right now would do well to buy this chip designer before it starts flying higher.

2. Marvell Technology

Marvell Technology (NASDAQ: MRVL) is Broadcom's competitor in the custom AI chip market, and shares of the company have slipped a massive 55% this year. As a result, Marvell is now trading at just 22 times trailing earnings. Buying this chip stock at this valuation is a no-brainer given its phenomenal growth.

After reporting 27% year-over-year growth in fiscal 2025's Q4 (which ended on Feb. 1), Marvell is expecting its fiscal 2026 Q1 revenue to jump at a greater pace of 61%. Meanwhile, it is expecting earnings to jump by more than 2.5 times from the year-ago period. This tremendous growth makes it clear why Marvell's 12-month price target of $105 as per 39 analysts covering the stock points toward a potential jump of 112% from current levels.

What's more, 92% of the analysts suggest buying Marvell stock, which is not surprising considering its red-hot growth. Importantly, its growth seems sustainable going forward. Marvell is the second-largest player in the custom AI chip market after Broadcom, with the latter controlling an estimated 70% of this space. However, analysts are expecting both companies to be on equal footing in the future, driven by Marvell's recent wins in the custom AI processor market.

Marvell currently has two high-volume customers for its custom AI chips, and the good part is that it is expecting both customers to expand the adoption of its processors. Also, management pointed out on the company's March earnings conference call that it is on track to start production of custom AI chips for a third customer in 2026. The company points out that this third customer can drive "a very significant amount of incremental revenue for Marvell over the next several years."

What's more, Marvell is pushing the envelope on the product-development front. The company is working with its foundry partner TSMC to roll out custom AI processors and connectivity chips made using a 2-nanometer (nm) manufacturing process. The two companies have already developed a working sample of the 2nm silicon, according to an update issued last month.

This could give Marvell an advantage over Broadcom considering that the 2nm chip samples of the latter are expected in June this year. So, the possibility of Marvell gaining ground in the AI chip market is definitely solid. All this explains why analysts are expecting remarkable growth of 79% in the company's earnings in the current fiscal year, which could indeed help this semiconductor stock deliver the remarkable returns that it is expected to deliver over the next year.

Throw in Marvell's cheap valuation, and it is easy to see why it would be a good idea to buy this stock hand over fist following its big drop this year, as it may not be long before it regains its momentum thanks to its outstanding AI-fueled growth.

Should you invest $1,000 in Broadcom right now?

Before you buy stock in Broadcom, consider this:

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Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $591,533!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $652,319!*

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.

The broad market sell-off this year has weighed heavily on technology stocks. While the S&P 500 is down by about 11% from its peak, the tech-heavy Nasdaq Composite index is off by about 15%, and this more pronounced pullback isn't surprising considering that investors have become more risk-averse of late.

This is one reason why artificial intelligence (AI) stocks, which had been in fine form on the market for the past couple of years, have been heading lower even as many have been reporting solid quarterly results. However, AI adoption is set to increase at a robust pace in the long run: Grand View Research projects 36% annualized growth in this space through 2030.

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As a result, companies selling AI-focused hardware and software should ideally experience healthy growth over the long run. That's why now would be a good time to take a closer look at some solid AI stocks that have dropped in 2025 to attractive valuations, but that have the potential to fly higher in the long run thanks to the massive opportunities they are sitting on.

1. Advanced Micro Devices

Shares of chip designer Advanced Micro Devices (NASDAQ: AMD) are down by close to 29% in 2025 as of this writing. As a result, AMD now trades at an attractive 19 times forward earnings. That's well below the tech-laden Nasdaq-100 index's forward earnings multiple of 24. Even better, AMD is undervalued with respect to the growth that it is expected to deliver over the next five years.

This is evident from the stock's price/earnings-to-growth ratio (PEG ratio) of just 0.35 based on its projected five-year earnings growth, according to Yahoo! Finance. The PEG ratio is a forward-looking valuation metric that's calculated by dividing a stock's price-to-earnings ratio by the estimated annual earnings growth it could deliver over various periods. Stocks with positive PEG ratios of less than 1 are generally viewed as being undervalued with respect to their projected growth.

Consensus estimates are projecting a 36% increase in AMD's earnings to $4.51 per share this year. That's expected to be followed by healthy growth over the next couple of years as well, despite recent downward revisions in those estimates due to the economic headwinds created by President Donald Trump's tariffs and trade wars.

AMD EPS Estimates for Current Fiscal Year data by YCharts.

Of course, tariffs on semiconductors, computers, and raw materials could dent AMD's sales and earnings growth, as the company will be forced to increase the prices of its offerings, absorb higher costs, or both. However, Trump has -- at least for now -- exempted semiconductors from his tariffs, and put a 90-day pause on the comprehensive tariffs he imposed on most countries in the world to allow time for negotiations.

It remains to be seen how those various international negotiations will play out, but the administration's apparent willingness to negotiate with trade partners suggests that favorable outcomes may be possible. Additionally, tech companies' heavy investments in AI infrastructure are likely to continue despite the tariff-related turmoil. This explains why AMD is expecting to report next month that its first-quarter revenue increased by 30% year over year at the midpoint of its guidance range.

The company is on track to benefit from the growing demand for AI server CPUs (central processing units) and graphics processing units (GPUs), along with the growth in AI-enabled personal computers. Meanwhile, there are other catalysts, such as an increase in the number of design wins in the embedded chip market. Also, the upcoming gaming console upgrade cycle should be a key growth driver.

In sum, there is more to AMD than just AI, which is why investors looking for growth stocks trading at attractive valuations should consider buying it hand over fist right now.

2. DigitalOcean

DigitalOcean (NYSE: DOCN) provides on-demand cloud computing infrastructure to small businesses, developers, and start-ups, and it has recently started offering AI solutions as well. In October, the company released Droplets, an AI infrastructure platform through which customers can rent its cloud platform to train and deploy large language models (LLMs).

Demand for the platform was so strong that DigitalOcean was finding it difficult to provide enough capacity. That wasn't surprising as Droplets allowed its customers to deploy AI applications without buying expensive hardware. Not surprisingly, DigitalOcean is now investing more money to bolster its AI infrastructure.

DigitalOcean customers can also rent a more powerful version of its cloud infrastructure platform through the Bare Metal GPUs solution. The company notes that Bare Metal gives customers "maximum performance and control, ideal for sustained, high-throughput workloads that demand direct access to hardware resources and customization." So customers looking to run heavier AI workloads can also turn to DigitalOcean to fulfill their requirements.

DigitalOcean is doing the right thing by investing in AI hardware so that it can rent capacity on it to customers, as the market for that is on track to grow substantially in the long run. Goldman Sachs estimates that the cloud infrastructure-as-a-service (IaaS) market could be worth a whopping $580 billion by the end of the decade.

The addition of AI tools to its offerings is helping DigitalOcean drive stronger customer spending. In its fourth-quarter earnings release, it pointed out that the "continued traction in AI drove quarterly revenue for our top 500+ customers, representing 22% of total revenue, to grow at 37% year-over-year."

The company's average revenue per customer jumped 14% year over year. DigitalOcean is set to move deeper into AI with the addition of agentic AI solutions, which will allow its clients to build AI agents with the help of powerful LLMs on its GenAI Platform. As a result, it won't be surprising to see its customers spending even more with DigitalOcean, and even more customers signing up with it.

All this helps explain why analysts expect DigitalOcean's bottom-line growth to improve.

DOCN EPS Estimates for Current Fiscal Year data by YCharts.

Finally, with DigitalOcean trading at just 13.5 times forward earnings following its recent pullback, now is a good time for investors to buy this cloud computing stock. It could jump impressively in the long run thanks to the growing demand for AI services in the cloud.

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*Stock Advisor returns as of April 21, 2025

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, DigitalOcean, and Goldman Sachs Group. The Motley Fool has a disclosure policy.

Taiwan Semiconductor Manufacturing (NYSE: TSM), popularly known as TSMC, has turned out to be a solid investment over the past five years. Shares of the foundry giant have jumped an impressive 182% during this period, easily outpacing the 83% gains clocked by the S&P 500 index.

However, the broader stock market sell-off has weighed on TSMC stock so far this year. The foundry specialist has lost 25% of its value in 2025 even though it has delivered a couple of solid quarterly results thanks to the outstanding demand for the chips it manufactures. But the drop in TSMC stock this year is a window of opportunity for investors looking to add a long-term winner to their portfolios.

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That's because TSMC is one of the best ways to benefit from the secular growth of the semiconductor market. Let's look at the reasons why buying TSMC stock for the next five years could turn out to be a smart move.

The chip market is set for solid growth over the next five years

The global semiconductor industry generated $628 billion in revenue in 2024, clocking 19% growth from the previous year, as per the Semiconductor Industry Association. It is expected to grow by double digits in 2025 as well, driven by the growing demand for chips in various applications such as communications, artificial intelligence (AI), defense, transportation, medical devices, and others.

These growth drivers are expected to send the global semiconductor industry's revenue to $1 trillion in 2030, according to market research firm Yole Group. More optimistic estimates project the semiconductor market to hit almost $1.5 trillion in revenue by the end of the decade. These estimates bode well for TSMC as it is the world's biggest semiconductor foundry with a market share of 67%.

The company's chip fabrication plants are used by more than 500 customers for manufacturing close to 12,000 products. They serve multiple end markets ranging from automotive to consumer electronics to smartphones to high-performance computing, among others. It makes chips for top companies such as Apple, Nvidia, AMD, Qualcomm, Broadcom, Sony, Samsung, and MediaTek.

These customers are dominant players in their respective industries. Importantly, all of them have been lining up to manufacture chips using TSMC's advanced process nodes. Apple, for instance, reportedly plans to deploy chips manufactured on TSMC's 2-nanometer (nm) process node in its 2026 iPhones, while AMD, Intel, and Broadcom are also expected to adopt this process node to manufacture AI accelerators.

Meanwhile, Nvidia is expected to manufacture next-generation AI chips using the 2nm process node. TSMC's 2nm chips are expected to hit mass production in the second half of the year. The company is reportedly enhancing its 2nm manufacturing capacity, with production projected to reach 50,000 wafers per month by the end of 2025 before eventually jumping to 80,000 wafers a month.

What's more, TSMC expects to manufacture 30% of its 2nm chips in the U.S., which is why it is going to speed up the construction of its facilities in Arizona. It is worth noting that TSMC got 22% of its total revenue from selling 3nm chips in the first quarter of 2025, up from just 9% in the year-ago period. The revenue share of 5nm chips fell by a percentage point to 36% in Q1.

The stronger adoption of the 3nm chips can be explained by the 15% performance gains and 30% to 35% power efficiency gains they deliver over the 5nm process node while being smaller in size. The 2nm chips, meanwhile, are expected to deliver similar gains over the 3nm process node, which explains why TSMC is anticipating solid demand for this manufacturing process.

After all, major chipmakers and consumer electronics companies that TSMC serves are looking to reduce power consumption and the size of chips while achieving higher computing performance. This can be achieved by shrinking the size of the chips and packing more transistors into a smaller area. TSMC has been ahead of its rivals in shrinking the size of its chips, and that trend is expected to continue with 2nm.

That's because Samsung's power efficiency gains while moving from 3nm to 2nm are expected to be smaller than TSMC at 25%, which should ideally allow the latter to maintain its technology lead. As a result, don't be surprised to see TSMC gain a bigger share of the foundry market. The company gained 6 percentage points of market share in 2024, while Samsung's share slipped by 3 percentage points to just 11%.

The potential advantage of the 2nm process node could help TSMC widen that already impressive gap further. As a result, TSMC could corner a bigger share of the semiconductor foundry market by 2030, which is expected to generate almost $217 billion in revenue after five years.

However, the company's revenue opportunity doesn't end here -- it is targeting the lucrative advanced chip packaging market as well under its Foundry 2.0 strategy. The overall Foundry 2.0 market, which includes both chip manufacturing and packaging, is expected to hit $298 billion in revenue this year, according to IDC. The market research firm anticipates this market to grow at an annual rate of 10% for the next five years.

IDC expects TSMC's share of this market to increase to 37% in 2025. The discussion above suggests that it could end up cornering a bigger share of this lucrative market over the next five years, and that could translate into healthy stock market gains.

How much upside could TSMC deliver?

A 37% share of the Foundry 2.0 market this year would bring TSMC's 2025 revenue to around $110 billion (based on IDC's $298 billion revenue estimate). However, analysts have increased their growth expectations for the current year and are expecting its bottom-line growth to pick up.

TSM Revenue Estimates for Current Fiscal Year data by YCharts

The improved outlook could be attributed to the company's stronger position in the advanced chip manufacturing market, which is witnessing solid growth thanks to applications such as AI. If the Foundry 2.0 market indeed grows at 10% a year for the next five years (as per IDC's estimate), it could generate $480 billion in revenue at the end of the forecast period.

Assuming TSMC's Foundry 2.0 market share grows further and it manages to capture even 45% of this space after five years, its revenue could hit $216 billion. That would be double the revenue it is expected to generate this year. Multiplying the projected revenue after five years with the company's five-year average sales multiple of 9 points toward a market capitalization of $1.94 trillion.

That would be 2.5 times TSMC's current market cap, indicating that this semiconductor stock could continue delivering healthy gains over the next five years as well.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $591,533!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $652,319!*

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*Stock Advisor returns as of April 21, 2025

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: short May 2025 $30 calls on Intel. The Motley Fool has a disclosure policy.

Shares of Taiwan Semiconductor Manufacturing (NYSE: TSM), popularly known as TSMC, have been under pressure in 2025. Investors have concerns surrounding the health of artificial intelligence (AI) infrastructure spending earlier this year followed by the recent tariff-related turmoil, which sparked a stock market sell-off. Still, the company's latest results show that these factors haven't derailed the company's impressive growth trajectory.

TSMC released its first-quarter results on April 17. The company's revenue and earnings rose impressively from the year-ago period, and management's guidance clearly indicates that it isn't expecting a slowdown in its growth on account of the tariff-fueled trade war.

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Let's take a closer look at TSMC's latest quarterly results and check why it may be one of the best bets in the AI chip sector right now.

AI-fueled demand is powering TSMC's impressive growth

TSMC's Q1 revenue jumped 35% year over year to $25.5 billion, while earnings shot up nearly 54% from the year-ago period thanks to an improvement in its margins. Specifically, TSMC's net profit margin increased by 5 percentage points from the year-ago quarter, and this can be attributed to the higher prices that it can charge customers.

The company enjoys a commanding lead in the global foundry market with an estimated share of 67% in the fourth quarter of 2024, according to Counterpoint Research. Its share of the foundry market increased by 6 percentage points from Q4 last year, thanks to the technology advantage it enjoys over rivals as well as the impressive customer base it has built.

TSMC's chip manufacturing services are used by AI chip giants such as Nvidia, Broadcom, Marvell, AMD, and Intel. These companies make various kinds of AI accelerators ranging from central processing units (CPUs) to graphics processing units (GPUs) to custom AI processors. The demand for these AI accelerators is expected to jump significantly in the future. Grand View Research estimates that the AI chip market could clock annual growth of 29% through 2030.

Given that TSMC fabricates chips for all the major designers of AI semiconductors, it is one of the best ways to capitalize on this massive end-market opportunity. However, TSMC's AI-related growth potential doesn't end here. That's because the company also manufactures chips for the likes of Samsung, Qualcomm, and Apple. Along with AMD and Intel, which manufacture chips used in personal computers (PCs), TSMC is well placed to make the most of the growing adoption of AI-enabled devices such as smartphones and PCs.

The generative AI-capable smartphone and PC market is expected to clock annual growth of almost 35% through 2029, presenting yet another massive growth opportunity for TSMC. So, it is easy to see why TSMC is expecting another quarter of solid growth. Its Q2 revenue guidance of $28.8 billion would be an improvement of 38% over the year-ago period, and this points toward an acceleration in the company's growth in the current quarter.

What's more, TSMC is expecting its operating profit margin to jump by 5.5 percentage points year over year in Q2. This should translate into outstanding earnings growth for the company. Another important thing worth noting here is that TSMC has maintained its capital expenditure forecast for 2025 despite tariff-related concerns.

This suggests that the company is confident of witnessing strong demand for its chips. This is precisely what CEO C.C. Wei pointed out on the latest earnings conference call:

Now let me talk about the recent tariff. We understand there are uncertainties and risk from the potential impact of tariff policies. However, we have not seen any change in our customers' behavior so far. Therefore, we continue to expect our full year 2025 revenue to increase by close to mid-20s percent in U.S. dollar term.

TSMC expects its AI chip revenue to double this year. That's why the company is focused on doubling its advanced chip packaging capacity this year to meet the robust demand for AI GPUs and custom processors, along with other chips needed for AI training and inference.

The stock is a no-brainer buy right now

We have already seen that TSMC's earnings are growing at a remarkable pace, and that trend is expected to continue in the current quarter as well. Moreover, the long-term potential of the AI chip market and TSMC's dominant position in the foundry space should ensure that it keeps growing at a nice clip for the remainder of the year and for the long run.

Analysts are expecting a 31% increase in the company's earnings this year. Importantly, TSMC is expected to maintain double-digit earnings growth for the next couple of years as well.

TSM EPS Estimates for Current Fiscal Year data by YCharts

However, the long-term opportunity in the AI chip market, which is expected to grow at an annual rate of almost 35% through 2035, could help TSMC's earnings grow at a faster pace than the market's expectations. Throw in the fact that TSMC is trading at less than 20 times earnings, and it is easy to see why it is a no-brainer buy right now to make the most of the fast-growing AI chip market.

So, investors looking to add a top AI stock to their portfolios should consider buying TSMC following its 25% decline this year as its strong earnings growth and attractive valuation could eventually translate into healthy gains on the market.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $561,046!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $606,106!*

Now, it’s worth noting Stock Advisor’s total average return is 811% — a market-crushing outperformance compared to 153% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 21, 2025

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Marvell Technology and recommends the following options: short May 2025 $30 calls on Intel. The Motley Fool has a disclosure policy.

Palantir Technologies (NASDAQ: PLTR) went public in September 2020, and shares of the software platforms and data analytics provider have jumped an impressive 714% since then as of this writing, though it is worth noting that almost all of the stock's gains have arrived in the past couple of years following the launch of its artificial intelligence (AI) software platform in April 2023.

However, Palantir stock has dropped considerably in the past month or so. The stock shot up remarkably when 2025 began, but it has dropped 38% from the 52-week high it hit on Feb. 18. Palantir's recent slide is because of factors outside of the company's control. The broader stock market negativity triggered by the tariff-induced global trade war has led investors to press the panic button.

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The tech-laden Nasdaq Composite index has dropped more than 20% in 2025 (as of this writing). Fears of an economic slowdown and a potential recession have led investors to book profits in stocks that delivered outstanding gains in the past couple of years, and Palantir is one of them.

However, the software specialist's sharp pullback of late could entice growth-oriented investors into buying the stock, considering the potential upside it could deliver over the next decade. Let's take a closer look at the catalysts that should act as tailwinds for Palantir over the next 10 years.

Booming demand for AI software can help Palantir zoom higher

Palantir's growth trajectory has started improving since the launch of its Artificial Intelligence Platform (AIP) a couple of years ago. The company launched AIP for both commercial and government customers with the aim of helping them build and deploy AI applications tailored to their operations. This platform has gained immense traction thanks to the productivity gains that AIP customers have been achieving, leading to outstanding growth in Palantir's customer base, as well as spending by existing customers.

Specifically, Palantir registered a 43% year-over-year increase in its customer count in the fourth quarter of 2024. Even better, it witnessed an increase in the number of customers signing bigger deals with the company. For example, the number of deals worth $1 million or more signed by Palantir last quarter increased by 25% from the year-ago period. Meanwhile, the increase in the number of $5 million-plus deals was bigger at 57% on a year-over-year basis.

These numbers make it clear that Palantir is winning big from the rapid adoption of AI software, a market that's expected to grow at an incredible pace over the next decade. Market research provider Roots Analysis expects the AI software market to generate a whopping $5.2 trillion in annual revenue in 2035, suggesting that Palantir is scratching the surface of a massive end-market opportunity that could help it sustain terrific growth levels over the next decade.

It is worth noting that Palantir has been ranked as the top vendor of AI software platforms by multiple third-party market research agencies such as IDC, Forrester, and others. This explains why customers have been flocking to Palantir's AIP, as the platform has been able to deliver cost and efficiency gains. The company reported a solid year-over-year increase of 56% in its total contract value in Q4 2024 to $1.8 billion.

This led to a big jump in Palantir's revenue pipeline. The company posted a 40% year-over-year increase in its remaining deal value (RDV) in Q4 to an impressive $5.4 billion. The metric refers to the total remaining value of contracts that Palantir has to fulfill at the end of a period. The growth in Palantir's RDV was higher than the 36% revenue growth the company clocked during the quarter.

So, Palantir is setting itself up for much stronger growth in the future. The company should benefit from the addition of more customers, as well as the increased spending by existing customers on its offerings. These factors are contributing toward positive unit economics for Palantir, allowing the company to record much faster growth in earnings as compared to revenue.

Unit economics is a measure of a company's profitability, helping us understand how much money it is making from each customer. Given that Palantir has been able to sign expanded deals with existing customers, a trend that could continue in the future thanks to the proliferation of AI, its margin profile could continue improving.

The following chart clearly indicates that Palantir's margins have improved considerably in the past couple of years, and there is still more room for growth on this front.

PLTR Operating Margin (TTM) data by YCharts

Should valuation be a concern right now?

Palantir's expensive valuation is a key reason why investors have been booking profits in this stock. After all, stocks trading at a premium valuation are at a higher risk during sell-offs since they are deemed riskier when compared to value stocks. The bad news is that Palantir is still trading at 66 times sales and 145 times forward earnings despite pulling back significantly of late.

So, it won't be surprising to see this AI stock pulling back further thanks to the negative sentiment that's affecting global stock markets right now. However, if Palantir stock continues to slide further and becomes available at a much cheaper valuation, it would be worth buying, considering the huge addressable opportunity available in the AI software market over the next 10 years.

What's worth noting is that Palantir has started growing at a faster pace than the rate at which the global AI software market is expected to grow over the next decade. Roots Analysis is forecasting a compound annual growth rate of almost 31% for the generative AI software market through 2035. Palantir's revenue growth of 36% was much faster than that, while the improvement in its RPO was even better.

There is a good chance that Palantir will be able to sustain healthy growth levels over the next decade in light of the productivity gains that AIP is delivering to customers. So, savvy investors would do well to keep an eye on Palantir stock and consider accumulating it if it falls further since it could turn out to be a solid investment over the next decade.

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The stock market is having a terrible year so far. President Donald Trump's sweeping tariffs have rattled investors and analysts. There is rising fear that an impending global trade war will lead to a global recession.

Some investors have been booking profits in equities and moving toward "safer investments" such as gold and government bonds. This explains why high-flying stocks such as Dutch Bros (NYSE: BROS) saw a significant pullback in the past few weeks.

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The coffee-focused restaurant chain's share prices shot up big time in February following the release of strong quarterly results, clocking gains of more than 60% in just over two months. But Dutch Bros stock is down 37% from the 52-week high it hit on Feb. 18.

This pullback could be an opportunity for savvy investors to add a fast-growing company to their portfolios. Let's look at the reasons why buying Dutch Bros stock right now could turn out to be a smart long-term move.

Dutch Bros' impressive growth seems here to stay

Dutch Bros ended 2024 with annual revenue up 33% to $1.28 billion. The company also reported an impressive increase of 63% in its bottom line to $0.49 per share. This increase was driven by a combination of healthy growth in its same-store sales and the opening of new stores. Dutch Bros increased its new shop count by 18% last year.

What's more, the company-operated shop contribution margin was up by 150 basis points last year (roughly 35% of stores are owned by franchisees), which explains why its earnings grew at a faster pace than its revenue. An important thing to note here is that Dutch Bros managed to expand its margins despite an increase in coffee prices. The company did this by raising prices and by lowering the capital cost of opening each new shop.

Dutch Bros management points out that last year was its "peak per unit capex," which means that it expects the opening cost of each new shop to come down. This should allow it to mitigate the potential effect of an increase in coffee prices due to newly imposed tariffs from the U.S. and elsewhere. The U.S. announced 46% tariffs on imports from Vietnam and a 32% duty on Indonesian imports. Brazil and Colombia were slapped with 10% import duties.

So, there is a good chance that Dutch Bros will continue to see a hike in coffee prices this year. Even then, management forecasts a 17% jump in its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) this year. Management also expects sales to grow by 22% this year. These numbers are solid, considering the potential effect of higher prices that Dutch Bros will need to pass on to its customers due to a tariff-fueled increase in coffee prices.

This explains why analysts expect a dip in Dutch Bros' earnings growth in 2025. Consensus estimates project a 23% increase in the company's bottom line this year to $0.60 per share. However, its earnings are expected to grow at a faster pace over the next couple of years, as shown in the chart below.

Data by YCharts.

More importantly, Dutch Bros can sustain impressive growth for a much longer period, as it sees a massive opportunity to grow its business in the long run. The company opened its 1,000th shop in February, and it expects to double this count in the next four years. Dutch Bros also sees the potential of opening more than 7,000 shops in the long run.

As such, it won't be surprising to see Dutch Bros become a much bigger company in the long run. That's why investors looking to buy a potential long-term winner right now should take a closer look at this name.

The stock is expensive, but it can justify its valuation

Even though Dutch Bros stock has retreated significantly of late, it continues to trade at a relatively expensive valuation. It's trading at 151 times trailing earnings, and the forward earnings multiple of 83 isn't all that cheap either. However, we have seen that Dutch Bros' earnings growth could accelerate starting next year.

The long-term store opening opportunity is another reason why this company seems built for healthy growth in the long run. All this tells us why it may be a good idea to start accumulating Dutch Bros stock while it is retreating, as the market could reward its accelerating growth with more upside in the future. 14 of the 16 analysts covering Dutch Bros recommend buying the stock, with a median 12-month price target of $82. That would be a 54% jump from current levels. This should give investors another incentive to buy this growth stock, as it seems poised to deliver solid gains in both the short and the long run.

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*Stock Advisor returns as of April 5, 2025

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.