Key Points

• C3.ai stock has been sliding this year, and analysts aren't optimistic about its turnaround prospects in the coming year.

• Another cloud computing company, DigitalOcean, is capitalizing on the growing adoption of AI and has the potential to deliver impressive gains.

• The AI-fueled earnings gains that DigitalOcean could deliver in the next year could help it overtake C3.ai's market cap.

• These 10 stocks could mint the next wave of millionaires ›

Pure-play enterprise artificial intelligence (AI) software company C3.ai (NYSE: AI) has had a 2025 to forget so far. It lost almost 22% so far this year at this writing.

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Though the company has been delivering healthy growth on account of the rising adoption of its AI software solutions by both commercial and government customers, the market doesn't seem to have much confidence in the stock right now. Out of 17 analysts covering it, only four recommend buying it. Their 12-month median price target of $26 points toward a slight decline from current levels.

Image Source: Getty Images

What's weighing on C3.ai's prospects?

One reason analysts aren't upbeat about C3.ai's prospects is that it has been performing poorly on the bottom line. The company isn't profitable yet and it hasn't shown much improvement on that front. Its non-GAAP net loss in its 2025 -- which ended April 30 -- contracted by just 13% while the top line grew by 25%.

Of course, C3.ai is investing in pursuit of growth so that it can capitalize on the immense opportunity in AI software. However, the one-year price target suggests that its market cap could decline further from the current level of about $3.4 billion. Meanwhile, there's another company in the space that's expected to jump nicely in the near term, and could even be worth more than C3.ai a year from now.

AI is all set to drive terrific growth for this company

DigitalOcean Holdings (NYSE: DOCN) provides a cloud computing platform that's mainly used by small companies and early-stage developers. This explains why its strategy of offering cloud computing servers powered by graphics processing units (GPUs) from the likes of Nvidia and Advanced Micro Devices is turning out to be a smart one.

For instance, DigitalOcean announced that it is offering its clients computing power from a broad range of Nvidia's GPUs, ranging from its older RTX series to popular AI accelerators such as the H100 and H200. Additionally, AMD's MI300 GPUs are also available through DigitalOcean's platform to customers who want to build AI applications, and the company makes it easy for clients to scale up their use of its services based on their needs.

DigitalOcean claims that its customers can save up to 75% in costs by running their AI workloads on its GPU-powered servers as compared to working with hyperscalers. Importantly, DigitalOcean's cloud-based platform can run a wide variety of workloads, including training large language models (LLMs), running inference applications, content creation, and 3D modeling.

The cost-effective nature of DigitalOcean's AI-focused offerings helps explain why its customers are now spending more money on its solutions. Its average revenue per user increased by an impressive 14% year over year in the first quarter of 2025. Importantly, it has tremendous opportunities in the GPU-as-a-service market, which is expected to more than 10 times from about $4.3 billion in 2024 to almost $50 billion by 2032.

As a result, DigitalOcean seems well-placed to benefit from new customers and also from winning more business from its existing customers. Specifically, management is expecting it to increase its customer base at an annualized rate of 13% over the next couple of years, and foresees existing customers increasing their spending by 5% to 7% every year. The company has targeted an annual revenue growth rate of 18% to 20% through 2027.

Moreover, with its anticipated increase in average revenue per user improving its margins, it should book robust bottom-line growth. It is worth noting that DigitalOcean's adjusted earnings increased by 30% year over year in Q1, outpacing the 14% growth in its revenue. So, the improvement in the revenue growth rate that DigitalOcean is forecasting has the potential to increase its earnings power as well.

All this helps explain why analysts have a consensus 12-month price target of $38 on DigitalOcean -- 32% higher than its current level. Its market cap today is about $2.60 billion, and the projected jump over the next year could take it to $3.5 billion. That's where C3.ai's market cap currently stands.

So if C3.ai shares remain under pressure over the next year and DigitalOcean delivers the growth that analysts and management are expecting, the latter's market cap could exceed the former's.

DigitalOcean is trading at just 15 times forward earnings. That's about half the tech-laden Nasdaq-100 index's average forward earnings multiple. Considering the potential for an acceleration in its earnings growth, the market may decide to reward the stock with a richer valuation multiple. With all that in mind, DigitalOcean looks like a top AI stock to buy right now, not only to hold for the next year, but for the long run as well.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, DigitalOcean, and Nvidia. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.

Investing in growth stocks has the potential to generate above-average returns in the long term.

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*Stock prices used were the afternoon prices of May 29, 2025. The video was published on May 31, 2025.

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Parkev Tatevosian, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DigitalOcean. The Motley Fool has a disclosure policy. Parkev Tatevosian is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through his link, he will earn some extra money that supports his channel. His opinions remain his own and are unaffected by The Motley Fool.

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?

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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.