AI Application Stocks Rally, Easing Capex Concerns: New Investment Opportunity?

AI-linked stocks APP, PLTR, INOD, SHOP, and DUOL experienced robust growth in their Q3 earnings, sparking a rally in their share prices as investors hone in on AI sector opportunities.

AppLovin: AI Advertising

$AppLovin Corporation(APP)$  , renowned for its AI-driven advertising solutions, continues to exceed forecasts. Its AI-powered ad targeting and monetization strategies have proven effective. 

On Nov. 6, 2024, AppLovin posted a 39% year-on-year increase in Q3 revenue and a 300% surge in net profit. Revenue from its AI-centric software platform, featuring the AXON-powered AppDiscovery ad engine, climbed 66% to $835 million. The stock soared 46% on the earnings announcement, marking a 650% rise year-to-date.

Palantir: AI-Powered Decision Making

$Palantir Technologies Inc.(PLTR)$   delivers intelligent decision-making tools through its Gotham and Foundry platforms for government and corporate clients. Q3 revenue rose 30% from a year earlier, with net margins improving, underscoring the scalability of its AI offerings.

Innodata: AI Data Engineering

$Innodata(INOD)$   specializes in AI development services, including supervised fine-tuning and data collection. Its Q3 2024 earnings, revealed on Nov. 8, showed a 136% increase in revenue to $52.2 million, propelling the stock up over 75%.

Shopify: AI-Driven E-commerce

$Shopify(SHOP)$  , the Canadian e-commerce leader, utilizes AI through its Shopify Magic suite for store creation, marketing, and support. On Nov. 13, 2024, Shopify reported a 24% rise in GMV to $69.7 billion and a 26% increase in revenue to $2.16 billion for Q3.

Duolingo: AI in Education

$Duolingo, Inc.(DUOL)$   introduced AI-powered video calls with its character Lily for Max subscribers on Sept. 24, 2024. On Nov. 6, the company reported a 40% year-on-year revenue boost, with DAUs up 54% and MAUs rising 36%. Management highlighted strong demand for the Lily feature as a growth catalyst.

AI Applications Ease Concerns Over Spending vs. Gains

With Q3 results from major tech players mostly in, the trend of escalating AI spending persists. Microsoft, Alphabet, Amazon, and Meta have all committed to substantial AI-related capital outlays.

– Microsoft: Q3 capex rose 50% to $15 billion, with a projected 32% increase in Q4 and over 55% growth in FY2024, driven by AI investments and server upgrades.

– Alphabet: Q3 capex jumped 62% to $13 billion, with similar expectations for Q4 and significant growth next year, focused on AI infrastructure.

– Amazon: Real estate and equipment spending surged 81% to $22.6 billion in Q3, with a record $75 billion forecast for this year, primarily for AWS, and even higher expenditures anticipated next year.

– Meta: Q3 capex increased 36% to $8.3 billion, with annual guidance between $38-40 billion, largely for AI infrastructure. Meta reiterated plans for notable AI capex growth next year.

Jonathan Curtis, EVP and CIO of Franklin Equity Group, emphasized the ongoing "arms race" for future computing power and monetization, noting Microsoft's potential for a tenfold increase in GPU capacity and rising sovereign demand. TSMC's AI chip demand is anticipated to exceed supply through at least 2025.

Hardware companies are ramping up the deployment of AI models and applications, anticipating these innovations will spur fresh demand for hardware.

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