2 Growth Stocks to Invest $1,000 in Right Now

Key Points

• Palantir’s ontology-driven AI platform is helping it build a sticky customer base.

• TSMC’s market leadership and technological edge in advanced chip manufacturing give it strong pricing power.

• 10 stocks we like better than Palantir Technologies ›

The U.S. stock market has been volatile this month as technology stocks slid in early September but bounced back over the past few days. Despite these swings, artificial intelligence (AI) remains a force to be reckoned with, contributing lift to the share prices of numerous high-quality companies. Many AI companies have been delivering strong earnings performances and securing large-scale contracts that highlight impressive visibility into their future revenues.

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If you have $1,000 right now that you don't require to pay bills or for contingencies, then I see two AI leaders as standout options for you to invest those funds in. Both are reporting impressive revenue growth, have durable competitive moats, and are positioned to provide impressive share price gains in the coming years.

Palantir Technologies

Palantir Technologies (NASDAQ: PLTR) is no longer just a data analytics and mining vendor for government agencies. The company has become one of the most important enterprise AI companies globally, catering to both government and commercial clients.

In the second quarter, revenues grew 48% year over year to over $1 billion, and its adjusted operating margin reached 46%. Palantir also reported a Rule of 40 score (a measure of investability of a software-as-a-service company that combines its revenue growth and free cash flow margin) of 94, up 11 points on a sequential basis. The company ended the quarter with $6 billion in cash on the books, and generated $569 million in adjusted free cash flow at a 57% margin.

Adoption of Palantir's offerings has been accelerating at an unprecedented pace. Its customer count increased 43% year over year to 849 customers, while its remaining performance obligations (RPO, a measure of future revenue pipeline) rose 77% to $2.4 billion. The company is also seeing increased traction among high-value clients, as is evident from its closing 157 deals worth at least $1 million, including 42 valued at $10 million or more.

The Palantir Artificial Intelligence Platform (AIP) is the company's biggest growth catalyst. AIP boot camps give clients the opportunity to test the platform on their proprietary data and see how it can help them solve their own real-world challenges. This dramatically accelerated its sales cycle, as clients move from pilot programs to large-scale production deployments within days. Its U.S. commercial revenues soared by 93% in Q2 while U.S. government sales grew 53%. The U.S. Army has also signed a 10-year enterprise agreement worth $10 billion with Palantir that consolidated 75 smaller contracts into a single contract.

Palantir stands apart from most enterprise AI software players because of its focus on ontology -- a framework of relating a company's data and digital assets with its real-world operations, including processes, decisions, and outcomes. Unlike some other AI platforms, which work with raw data and AI models to generate predictions and abstract text, ontology-based systems help convert information into actionable insights for the client. This approach embeds Palantir's software deeply in its clients' workflows, which gives it high switching costs and a sticky customer base.

Palantir stock is expensive, trading at nearly 278 times expected forward earnings -- a multiple that would make many investors hesitate. But many early-stage growth companies targeting large addressable markets have traded at such high valuations. Investors were also concerned with the lofty multiples of companies like Amazon and Nvidia in their early years, but those who focused on long-term growth ended up holding shares of generational winners. Today, long-term investors could similarly consider picking up a small stake in Palantir to benefit from its AI-powered multi-year growth story.

Taiwan Semiconductor Manufacturing

Technology giant Taiwan Semiconductor Manufacturing (NYSE: TSM) continues to dominate the advanced chip manufacturing space, with about a 70.2% share of the global chip foundry market. The company's latest results highlight its success story. In the second quarter, revenue rose 44.4% year over year to $30.1 billion, driven mainly by robust demand for manufacturing using its advanced process technologies (7-nanometer and below). The company maintained healthy profitability, with operating margins of around 49.6% and a net profit margin of 42.7%, despite currency-exchange and expense headwinds.

TSMC is a crucial player supporting the build-out of global AI infrastructure. High-performance computing platforms, including GPUs and custom accelerators, accounted for 60% of its revenue in the second quarter. Explosive growth in AI model usage and adoption, and deployment of numerous sovereign AI projects, is translating into increasing demand for computational power and a commensurately huge spike in demand for cutting-edge chips. TSMC is also focusing on bringing its 2-nanometer process technology up to volume production in the second half of 2025. Chips built using that technology will offer significant power and performance gains. Demand for that new technology for high-performance computing applications and smartphones is expected to be solid, and it should prove more profitable for TSMC than the 3-nanometer node.

Demand for advanced Chip-on-Wafer-on-Substrate (CoWoS) packaging solutions is also significantly higher than capacity, and data center build-outs are progressing at a rapid pace. The demand-supply mismatch may narrow, but it may not come completely into balance, even if TSMC further increases its packaging capacity. With tight capacity for advanced technology node and packaging production, the company will continue to enjoy pricing power for several quarters.

TSMC's strategy of building new fabs in the U.S., Europe, and Japan is helping reduce the geographic concentration risks of its prior focus on Taiwan, and also helping it forge deeper relationships with international clients. The company is planning for capital expenditures in the range of $38 billion to $42 billion in 2025 for new fabs and packaging facilities, including a major expansion of its facilities in Arizona.

Despite its technological leadership and unmatched scale in the chipmaking industry, TSMC trades at 23.8 times forward earnings -- a reasonable level considering that the technology sector's median forward price-to-earnings ratio is 31.5. Considering all these factors, the stock looks like a smart buy now.

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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.