Artificial intelligence (AI) is set to play a key role in driving global economic growth in the long run. The evolving technology is expected to boost productivity, create new revenue streams, and facilitate innovation.

Market research firm IDC, for instance, forecasts that in 2030, each dollar spent on AI-related services will generate $4.60 in value. And a report from the United Nations Trade and Development office suggests that the AI market could surge in value by 25x over the next decade, generating a whopping $4.8 trillion in revenue in 2033.

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With that in mind, it won't be surprising to see organizations and governments investing far more money in AI-focused hardware and software to become more productive and efficient. That's why investors would do well to take a closer look at a couple of names that are playing central roles in the proliferation of AI.

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1. Broadcom

Broadcom (NASDAQ: AVGO) makes specialized application-specific integrated circuits (ASICs) and networking chips used in data centers, and demand for its processors has taken off thanks to the proliferation of AI systems. Several cloud computing giants have been deploying Broadcom's custom AI processors to lower the costs of AI training and inference, and to reduce their reliance on expensive graphics processing units (GPUs) from Nvidia.

ASICs are custom AI processors built to perform specific tasks, allowing them to deliver more computing power with lower energy consumption when compared to general-purpose GPUs. The advantages of custom AI processors make them ideal for large-scale deployment in data centers and are precisely the reason why Broadcom's AI business is taking off.

Currently, three hyperscale cloud customers use Broadcom's custom accelerators in large AI data centers to develop next-generation models. The chipmaker is deeply engaged with these customers to develop even more advanced custom processors and networking chips to support their product roadmaps for the next three years.

In Broadcom's view, these three hyperscalers alone should create a serviceable addressable market (SAM) worth $60 billion to $90 billion for it by fiscal 2027. The company's AI revenue jumped by 77% year over year in the first quarter of its fiscal 2025 to $4.1 billion, so it is currently clocking a more than $16 billion annual run rate.

Broadcom, therefore, has terrific room for growth in the custom AI chip market over the next three years. But it's also worth noting that the company is engaged with another four hyperscalers that are looking to build and deploy custom AI accelerators. Broadcom is in the final stages of chip development for two of those customers, while the other two recently selected the chipmaker to build their own custom chips.

So, Broadcom's addressable opportunity in custom AI chips could be much larger in the long run than what the company recently projected. As a result, it could end up delivering much stronger revenue growth over the next three fiscal years than what analysts currently expect.

Data by YCharts.

The semiconductor giant could easily exceed that $82 billion revenue forecast in three years, once it is producing custom AI chips in large volumes for all seven of its customers. This probably explains why the company trades at an attractive price/earnings-to-growth ratio (PEG ratio) of 0.64 based on its projected earnings growth for the next five years, according to Yahoo! Finance.

The PEG ratio is a forward-looking valuation metric that takes into account a company's expected earnings growth; a positive reading of less than 1 is generally viewed as an indication that a stock is undervalued. Broadcom's PEG ratio is well below that mark. As such, investors should consider buying this AI stock right away, before it flies higher following the 26% gain it clocked over the past month.

2. Lam Research

Lam Research (NASDAQ: LRCX) manufactures semiconductor manufacturing equipment -- machines used by foundries and chipmakers to make chips for everything from smartphones to cars to computers to data centers. And the market it operates in is on track to expand nicely due to the growing demand for AI chips.

According to one estimate, global spending on semiconductor equipment could jump to $121 billion in 2025 and to $139 billion in 2026. Those estimates point toward a nice improvement from last year, when spending stood at $113 billion. However, don't be surprised if semiconductor equipment spending increases at an even faster pace based on recent updates from key chip companies involved in the manufacturing of AI equipment.

Foundry giant Taiwan Semiconductor Manufacturing, popularly known as TSMC, plans to have eight new chip fabrication plants under construction this year, as well as one advanced chip packaging facility. Memory specialist Micron Technology, meanwhile, expects to lay out $50 billion in capital expenses in the U.S. through 2030. As such, it is not surprising that Lam Research saw an impressive acceleration in its revenue and earnings growth.

In its current fiscal year, analysts expect its sales to increase by 22% to $18.2 billion and its earnings to increase by 32%. What's more, management is confident that it will achieve revenue in the $25 billion to $28 billion range by 2028, indicating that its top line could jump by around 50% over the next three fiscal years.

Assuming Lam hits the midpoint of its 2028 forecast range and that the stock maintains its current price-to-sales ratio of 6.4 at that time, its market cap would increase to around $170 billion. That would amount to a jump of around 65% in the space of three years. However, Lam today trades at a cheaper price-to-sales ratio than the U.S. technology sector's average of 7.4. So it won't be surprising to see this semiconductor stock delivering even stronger gains than that, as the market could put a higher valuation on it in light of its robust growth.

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

Before you buy stock in Broadcom, consider this:

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Apple supplier Cirrus Logic (NASDAQ: CRUS) has witnessed a big jump in its stock price in the past month, jumping 23% as of this writing after it emerged that its largest customer is getting a reprieve from the tariff turmoil.

Cirrus Logic supplies audio codecs, power amplifiers, camera controllers, haptics modules, and other types of chips that are used in smartphones and personal computers (PCs). Apple is its largest customer, accounting for 89% of the top line in the recently concluded fiscal 2025, which means that Cirrus' fortunes are closely tied to the iPhone maker.

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So, the Trump administration's decision to exempt imports of smartphones, computers, and chips from tariffs came as a welcome relief for Cirrus Logic investors. Tariffs could have dented Apple's sales since a large chunk of iPhones are produced in China, and the tech giant would have been forced to increase prices substantially to absorb the tariff impact.

And now, the agreement between the U.S. and China to substantially slash tariffs for 90 days further suggests that the trade war between the two economic giants is cooling off. It may be a good idea to buy shares of Cirrus Logic in such a scenario.

Image source: Getty Images.

Cirrus Logic's growth is gaining momentum thanks to AI

Cirrus Logic's revenue in the recently concluded fiscal 2025 (which ended on March 29) increased by just 6% year over year. Its adjusted earnings, however, increased at a much faster pace of 14% from the preceding year to $7.54 per share.

Though Cirrus' growth may not seem all that great, it is worth noting that the chipmaker performed well during a difficult year for its largest customer. Apple's iPhone shipments in 2024 fell slightly from the previous year. However, Cirrus was able to overcome this challenge as it won more business from Apple.

The chipmaker is now supplying power management modules to Apple as well, apart from audio codecs, which should have allowed it to mitigate the slight drop in iPhone volumes. But now, the arrival of Apple's artificial intelligence (AI)-enabled iPhones is boosting sales. The tech giant's smartphone shipments shot up an impressive 10% year over year in Q1 this year, which was way ahead of the 1.5% growth of the overall smartphone market.

At the same time, the company is also witnessing growth in sales of MacBooks and iPads thanks to the rollout of Apple Intelligence in these devices. The good part is that the sales of generative AI-capable smartphones and PCs are expected to increase at a compound annual growth rate of almost 35% through 2029.

So, it won't be surprising to see an improvement in sales of Apple's iPhones, MacBooks, and iPads in the future, and that bodes well for Cirrus Logic considering its reliance on the tech giant. As it turns out, Cirrus' sales in the fourth quarter of fiscal 2025 (which coincided with the first quarter of calendar 2025) shot up 14% from the year-ago period, exceeding the growth in the company's revenue for the entire fiscal year. Even better, its earnings grew at a much stronger pace of 34%.

The discussion above suggests that this trend is likely to continue as the adoption of AI-capable consumer devices increases, which is why it could end up outpacing analysts' expectations.

The valuation makes the stock an attractive buy right now

Cirrus Logic is currently trading at less than 18 times trailing earnings, which makes it an attractive bet considering the healthy earnings growth it delivered last quarter. Not surprisingly, analysts have increased their earnings growth expectations following its latest report.

CRUS EPS Estimates for Current Fiscal Year data by YCharts

Assuming Cirrus achieves the earnings that analysts are expecting from it next fiscal year and trades at 29 times earnings at that time, in line with the tech-laden Nasdaq-100 index's earnings multiple, its stock price could jump to $221. That would be just over double the company's current stock price, which is why investors should consider buying this growth stock before it zooms higher.

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Palantir Technologies (NASDAQ: PLTR) stock has been crushing the market in 2025. It's up by 43% year to date as of this writing, which may seem a tad surprising considering its expensive valuation.

After all, technology stocks have been under pressure this year on account of President Donald Trump's tariff-induced trade war, which has threatened to tip the U.S. economy into a recession. The Nasdaq Composite index, though it has rebounded from a deeper slide, is still down by more than 8% so far this year.

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However, Palantir's lofty valuation caught up with the stock somewhat following the release of the company's first-quarter results on Monday.

The stock fell more than 12% on Tuesday even though Palantir beat Wall Street's sales expectations, delivered in-line earnings, and raised its full-year guidance. In my view, the drop in the share price looks like an opportunity for savvy investors to buy a top growth stock that they can hold for the next five years.

In fact, I think Palantir's market cap could reach $1 trillion by 2030.

Image source: Getty Images.

Palantir's growth is set to accelerate thanks to AI

Palantir Technologies made its name by supplying software platforms and analytics solutions to U.S. intelligence agencies and the Defense Department. It is now leveraging that expertise in the commercial market, and the good part is that customers have been queuing up to sign up for its Artificial Intelligence Platform (AIP) to improve the efficiency of their operations.

AIP allows Palantir customers to integrate large language models and other AI applications into their business operations in ways that reduce costs and improve productivity. This explains why the company isn't just attracting new customers for this solution but is also winning more business from its established ones.

On the latest earnings conference call, Palantir described several instances of how customers are using AIP to improve productivity. So, it wasn't surprising to see a 66% year-over-year increase in the value of contracts that Palantir booked in the first quarter. Specifically, Palantir booked $1.5 billion worth of new contracts, which took its total remaining deal value (RDV) to almost $6 billion, up 45% from a year earlier. (RDV refers to the total value of the revenue remaining to be recognized under the contracts that a company has already signed.)

It is worth noting that both the RDV and the total contract value booked by Palantir last quarter exceeded the 39% year-over-year growth in its top line. This is precisely the reason the company's growth has been accelerating in recent quarters: It has been winning new contracts at a faster rate than it is fulfilling them, thanks to AI. Moreover, the company's unit economics are strong since it is getting a growing volume of business from its established customer base. This is the reason Palantir's adjusted earnings rose by an impressive 62% year over year to $0.13 per share.

PLTR Revenue (Quarterly) data by YCharts.

The healthy demand for Palantir's AI software solutions also encouraged management to increase its 2025 revenue guidance to almost $3.9 billion from an earlier estimate of around $3.75 billion. If it hits that updated guidance, its top line will be 36% higher than in 2024. However, don't be surprised to see the company do better than that given the pace at which its revenue pipeline is growing. Further guidance increases are possible as the year progresses.

Why a $1 trillion valuation is possible in five years

Last year, market research firm IDC predicted that the AI software platforms market will grow at an annual rate of almost 41% through 2028 to $153 billion.

Palantir, therefore, is landing new contracts and growing its revenue pipeline at a much faster pace than its end market is expected to grow. Assuming Palantir's top line increases at even a 40% rate (in line with its end market) for the next five years, its revenue would jump to almost $21 billion in 2030 (starting from its projected 2025 revenue).

The stock currently trades at 87 times sales. Even if its P/S multiple contracts to 50 after five years, its market cap could touch $1 trillion in 2030 based on its projected sales figure. That would be more than triple its current market cap. Moreover, Palantir is the No. 1 vendor of AI software platforms (according to third-party estimates), so there is a good chance that it may be able to grow at an even faster rate.

Also, the combination of its position at the top of the AI software platforms space and its fast-improving revenue pipeline should allow it to continue commanding a premium valuation over the long run. And the company's favorable unit economics are likely to translate into faster bottom-line growth than top-line growth.

All this makes Palantir a potential candidate for the trillion-dollar market cap club. So investors looking for a growth stock should consider buying it following its latest slip.

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Before you buy stock in Palantir Technologies, consider this:

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.

The tech-laden Nasdaq Composite index hit its most recent high on Dec. 16, 2024, but it has pulled back since then on account of various factors such as the tariff-fueled turmoil and a potential slowdown in artificial intelligence (AI) spending.

Specifically, the Nasdaq Composite is down just over 12% since its most recent high. This puts the index in correction territory, as a stock market correction refers to a drop of 10% to 20% in a major index. However, AI adoption is currently in its early phases. Consulting firm PwC reports that the adoption of AI could boost the global economy by 15 percentage points by 2035, which is why it won't be surprising to see companies and governments continue to invest in this technology in the long run.

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Image source: Getty Images.

That's why now would be a good time for investors to consider investing in shares of Broadcom (NASDAQ: AVGO). The stock is down 13% so far in 2025, but a closer look at the bigger picture will tell us that it can deliver healthy long-term gains thanks to the proliferation of AI.

Let's check out why buying Broadcom following its recent pullback is a good idea.

Broadcom is sitting on a massive growth opportunity

Though Nvidia is currently the leader in the AI chip market by a big margin, Broadcom is the second most important player in this space, according to JPMorgan. That's not surprising as Broadcom sold $12.2 billion worth of AI chips in fiscal 2024 (ended in November last year). That was a huge jump of 220% from the preceding year.

This terrific jump can be attributed to the rapidly growing demand for the custom AI processors that Broadcom designs. Customers have also been lining up to buy its networking chips to enable faster data transfer in AI data centers. Broadcom has carried forward this impressive momentum in the new fiscal year.

The company's AI revenue came in at $4.1 billion in the first quarter of fiscal 2025, a tremendous increase of 77% from the year-ago period. This red-hot growth streak is here to stay -- the demand for custom AI processors is set to grow substantially in the long run thanks to the advantage that these chips have over central processing units (CPUs) and graphics processing units (GPUs).

That's because custom processors are designed to perform specific tasks instead of general-purpose computing that's done by CPUs and GPUs. As a result, custom processors are more efficient at performing the tasks they are designed to do. This is the reason major cloud computing providers such as Meta Platforms, Alphabet, and others have been developing in-house AI processors to deliver improved AI performance and reduce costs simultaneously.

Alphabet, for instance, recently introduced its seventh-generation custom chip designed for tackling AI inference tasks. The company points out that this new chip, known as Ironwood, delivers a 10x increase in performance over its previous custom chip and is 2x more power efficient. Alphabet is reportedly a Broadcom customer, tapping the latter to design its custom AI chips.

And now, OpenAI and Meta Platforms are also expected to manufacture their custom AI processors with Broadcom's help. All this explains why more customers are interested in getting their custom processors designed by Broadcom. The company currently designs custom AI processors and networking chips for three customers, pointing out that they have opened a huge revenue opportunity worth $60 billion to $90 billion over the next three fiscal years.

Importantly, Broadcom is on track to bring an additional four AI customers on board, which could significantly expand the end-market opportunity it is sitting on. So, Broadcom's AI revenue seems on track for exponential growth in the long run, and that could translate to impressive stock upside.

The potential growth and valuation make this stock attractive

Based on Broadcom's massive growth opportunity, analysts are expecting the company's earnings to increase by an impressive 36% in the current fiscal year to $6.63 per share. What's more, its bottom line is expected to grow in the healthy double-digits over the next couple of years as well. This is evident from the chart given below.

AVGO EPS Estimates for Next Fiscal Year data by YCharts

However, Broadcom may be able to easily grow at a faster pace than that pace, considering the tremendous end-market opportunity it is sitting on. Another thing worth noting here is that Broadcom's price/earnings-to-growth ratio (PEG ratio) is at just 0.53 based on the annual earnings growth it is expected to deliver over the next five years, according to Yahoo! Finance.

A PEG ratio of less than 1 means that a stock is undervalued with respect to the growth that it is expected to deliver over the next five years. Broadcom's multiple indicates that it is well below that threshold, suggesting that investors are getting a good deal on an AI stock that seems primed to deliver terrific long-term gains.

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

Before you buy stock in Broadcom, 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 Broadcom 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 $617,181!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $719,371!*

Now, it’s worth noting Stock Advisor’s total average return is 909% — a market-crushing outperformance compared to 163% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

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JPMorgan Chase is an advertising partner of Motley Fool Money. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, 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, JPMorgan Chase, Meta Platforms, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

Technology stocks are having a forgettable year so far, thanks to macroeconomic factors such as the tariff-fueled market turmoil, a contraction in the U.S. economy in the first quarter of the year, and the rising risk of a recession on account of the global trade war.

This explains why fast-growing companies have dropped substantially in 2025 despite reporting solid growth in recent quarters. Confluent (NASDAQ: CFLT) is one such stock that has dropped 30% this year, even though the cloud-based data streaming platform provider's growth has been impressive of late. Shares of the company received another blow following the release of its first-quarter results on April 30.

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Investors pressed the panic button, even though its numbers beat Wall Street expectations. The stock is now trading at just under $20 following its latest pullback. Let's see why that was the case, and why investors would do well to consider buying this growth stock hand over fist right now.

Image source: Getty Images.

Confluent's conservative guidance sent investors into panic mode

Though Confluent's Q1 revenue increased an impressive 26% year over year along with a robust 60% year-over-year increase in earnings, it was the guidance that played spoilsport. Confluent expects its second-quarter subscription revenue to grow at a relatively slower pace of 19% from the year-ago period. Earnings, on the other hand, are projected to jump nearly 42% year over year at the midpoint of its guidance range.

The full-year subscription revenue growth guidance of 19.5% also represents a slowdown in growth when compared to the 26% growth it recorded in 2024. Confluent management attributed this slowdown to macroeconomic uncertainties that could lead its customers to reduce spending on its solutions. CFO Rohan Sivaram remarked on the latest earnings conference call:

In light of the uncertainties in the current environment, we are widening our revenue guidance range and embedding a modest decline in growth rates from Q2 through Q4. For our cloud business, some of our larger customers began slowing the pace of new use case addition and focusing on cost optimization efforts in March.

He added that Confluent isn't expecting "a near-term rebound in consumption" on account of the macroeconomic uncertainties. All this explains why Confluent stock dropped more than 18% in a single day following the release of its results. However, investors shouldn't miss the forest for the trees. Confluent's huge addressable market and growing customer base point toward a bright future for the company.

The company is sitting on a massive end-market opportunity

Confluent's data streaming platform allows customers to store, access, analyze, and manage data in real time instead of storing it in silos. This allows Confluent customers to act upon their data in real time, as opposed to storing it first and then processing that data later on in batches. As a result, Confluent's cloud-based platform is finding application in multiple use cases ranging from fraud detection, stock trading, and marketing to cybersecurity and artificial intelligence (AI), among others.

Not surprisingly, the company sees its total addressable market (TAM) growing to $100 billion this year -- double compared to four years ago. Even better, Confluent is witnessing an improvement in its customer base, along with stronger customer spending, despite facing macroeconomic pressures. This is evident from the 20% year-over-year increase in Confluent's customer base last quarter to 6,140. That's a major improvement over the year-ago period, when the company's customer base increased at a much slower pace of 9%.

Apart from adding new customers, Confluent is also winning more business from existing ones. This is evident from the dollar-based net retention rate of 117% in Q1. The company measures this metric by calculating the annual recurring revenue (ARR) of its customers at the end of a period to the ARR from the same customer cohort in the year-ago period. So, a reading of more than 100% in this metric means that the same customer cohort has decided to extend the usage of Confluent's offerings or is buying more solutions from the company.

Confluent's massive TAM suggests that it could continue attracting more customers and gain additional business from its existing customers in the long run. This is probably why analysts are expecting an acceleration in the company's earnings growth. Analysts are projecting a 24% increase in Confluent's bottom line in 2025 to $0.35 per share. The following chart points toward a much stronger level of earnings growth for the next couple of years.

CFLT EPS Estimates for Current Fiscal Year data by YCharts.

What's more, Confluent stock is undervalued when we take its earnings growth potential into account. The stock has a price/earnings-to-growth ratio (PEG ratio) of just 0.44, based on the annual earnings growth it's expected to clock for the next five years, according to Yahoo! Finance. A PEG ratio of less than 1 suggests that a stock is undervalued, and Confluent is well below that threshold.

So, if you have $20 with you to put into a growth stock, Confluent looks like the ideal long-term candidate based on the points discussed above.

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

Before you buy stock in Confluent, 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 Confluent 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 $623,103!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $717,471!*

Now, it’s worth noting Stock Advisor’s total average return is 909% — a market-crushing outperformance compared to 162% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

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*Stock Advisor returns as of May 5, 2025

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

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:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Broadcom 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!*

Now, it’s worth noting Stock Advisor’s total average return is 859% — a market-crushing outperformance compared to 158% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

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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.

Should you invest $1,000 in Advanced Micro Devices right now?

Before you buy stock in Advanced Micro Devices, 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 Advanced Micro Devices 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!*

Now, it’s worth noting Stock Advisor’s total average return is 859% — a market-crushing outperformance compared to 158% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

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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!*

Now, it’s worth noting Stock Advisor’s total average return is 859% — a market-crushing outperformance compared to 158% 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 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!*

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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.

Should you invest $1,000 in Palantir Technologies right now?

Before you buy stock in Palantir Technologies, 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 Palantir Technologies 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 $495,226!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $679,900!*

Now, it’s worth noting Stock Advisor’s total average return is 796% — a market-crushing outperformance compared to 155% 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 10, 2025

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.

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.