2 AI stocks to Buy Now With $200 | The Motley Fool (2024)

Artificial intelligence (AI) is estimated to add trillions in value to the global economy through cost savings and productivity gains in the coming years. The returns for investors could be very lucrative, if you own the right stocks.

While some AI stocks will be volatile as Wall Street sorts out the winners and losers, investors can stack the odds in their favor by investing in profitable tech leaders that are already seeing growing demand for their services.

Here are two stocks benefiting from the AI boom that an investor can easily afford with less than $200.

1. Palantir Technologies

Palantir Technologies (PLTR 2.02%) is seeing accelerating growth for its AI software platforms. The company is known for its relationship with the U.S. Department of Defense and intelligence agencies, but its momentum in signing corporate deals speaks to the inherent value of the company's AI platform and why the stock should be a long-term winner.

Palantir's revenue, which comes from subscriptions, grew 27% year over year in the second quarter. That's also is up from 13% in Q3 2023,and its quarterly growth has improved each quarter over the last year.

Government revenue is still growing fast at 23% year over year and reaching $371 million in the second quarter. But Palantir's U.S. commercial customer count nearly doubled over the last year, with U.S. commercial revenue reaching $159 million last quarter.

Palantir is signing deals with companies across multiple industries, including healthcare and consumer goods. Earlier this year, it signed a 10-year expansion deal with Cleveland Clinic to deploy Palantir across more hospitals. It also expanded its deal with General Mills; the Cheerios maker is saving $14 million annually using Palantir.

These deals show the breadth of Palantir's software capabilities. Most of its revenue has been driven by the U.S. government, but Palantir is proving to be a viable option for the largest organizations in the world. The long-term growth potential of the business could be massive.

Most importantly, Palantir is a profitable business, generating a net profit of $134 million in the second quarter. The stock has had its ups and downs over the last few years, but it will follow the long-term growth of the business.

2. Arm Holdings

Arm Holdings (ARM -6.09%) is a global leader in the semiconductor industry. Virtually every smartphone in the world uses Arm-based processors, but it has a huge opportunity to expand in the data center market as cloud companies upgrade their infrastructure for AI.

The first thing to understand about Arm, and this speaks to why it's a good investment, is the company generates revenue from licensing its chip products to other semiconductor companies and manufacturers.

What's more, after licensing a product, it then earns royalties on a per-unit basis on nearly all shipped processors using its technology. This royalty is usually based on a percentage of the chip's average selling price.

As you might guess, Arm has a very lucrative business model. In the most recent quarter, its adjusted operating profit was $448 million on $939 million of revenue -- a sky-high margin of 47%.

Its Armv9 chip technology is generating a quarter of its revenue right now and is seeing strong adoption, which bodes well for future royalties. In addition to smartphones, management is seeing strong demand for Armv9 in cloud computing. Arm's market share in the cloud has nearly doubled to 15% over the last two years, and it's also gaining share in automotive, consumer electronics, and networking equipment.

AI-optimized data centers rely on customized equipment, and that plays to Arm's advantage. The company is increasingly investing to help manufacturers design customized chips, which explains why it is starting to gain market share in the cloud market.

Arm has excellent growth prospects in the $600 billion semiconductor industry, and the stock's recent dip gives investors an opportunity to buy shares at a more reasonable price.