Popular internet bulletin boards like Reddit aren't usually the first places most investors look when searching for a potential stock pick. Indeed, given the number of once-hot meme stocks that have ended up crashing and burning, there's a decent case to be made for avoiding such crowdsourced ideas.
The funny thing is, the online investing crowd can be surprisingly savvy. Plenty of their favorite stocks remain uncomfortably volatile. But if you can jump in and leave them alone for a few years, a handful of these names could pay off in a big way.
With that as the backdrop, here's a deeper dive into two legitimate long-term stocks that Reddit users are raving about right now. You've probably heard of one of them, and probably haven't heard of the other.
1. C3.ai
C3.ai (AI -1.01%) is the company you've likely heard of, if only because it's one of the tickers that's been swept up by heightened interest in anything to do with artificial intelligence. Prior to that, it was well off most investors' radars.
Giving credit where it's due, conversational artificial intelligence platforms like ChatGPT and Google's Bard put the spotlight on the advent of practical AI tools. But these are the least meaningful applications of artificial intelligence. Far more powerful is artificial intelligence's potential to optimize a manufacturing operation, detect a pandemic at its earliest stages, predict a military foe's likely action, and more.
We're still just scratching the surface of AI's uses, though. So much more is coming. All of it will bear revenue, of course, making artificial intelligence a huge growth engine for investors. To this end, Polaris Market Research believes the AI market will grow at an annualized pace of 21.3% through 2030, when it will be worth nearly $300 billion per year.
Enter C3.ai.
C3.ai offers a variety of enterprise-level artificial intelligence services. In fact, there's not a lot it can't do with enough digital data. It currently serves markets ranging from the military to oil drilling and refining to utility companies to industrial outfits, just to name a few. Last fiscal year it did $266.8 million worth of business, up 5.6% year over year.
Unimpressive growth? Consider this: The year before, C3's top line grew a whopping 38%, which is a tough act to follow. Analysts collectively expect sales growth to reaccelerate to 15.6% this year and then continue accelerating to a growth pace of nearly 20% next fiscal year.
There's something else set to happen between now and then, however, which makes this Reddit favorite a compelling prospect even for long-termers. That is, C3.ai is expected to swing from a loss to an operating profit a year from now. Not a huge profit, mind you. The current analyst consensus for next year stands at only $0.12 per share, and the company's not expected to turn a net/GAAP profit until the year after that (and again, it's apt to be a minimal one). The year after that, though, net earnings are projected to soar, as the company will have plenty of scale by then.
Data source: StockAnalysis.com. Chart by author.
Whatever's in the cards -- and when -- turning any profit will not only validate the AI-as-a-service business model, it will also validate this particular business.
2. Chindata Group
The other red-hot Reddit stock that may merit more than a mere trade is Chindata Group (CD).
It's not a household name -- at least not in North America. In East Asia, though, it's one of the bigger hyperscale data center support and service companies.
It's also one of the most formidable. Earlier this year, the organization announced that its own 360-megawatt substation, powering its Taihang Mountain Energy and Information Technology Industrial Campus, was built in record time. That feat follows last year's establishment of Malaysia's Bridge Data Centres' cutting-edge colocation service facility. The site is the first built-to-suit facility of its size and scope using prefabricated (built offsite) components, further positioning Chindata as a leading and highly flexible top-down data center solutions provider.
And the numbers confirm the company is a go-to option for the region's technology names needing to do something constructive with a mountain of digital data (like turning it into artificial intelligence). Last year's revenue was up 60% year over year, driving an increase in net profits of more than 100%.
As is the case with C3.ai, though, the best is yet to come for Chindata. Research outfit Global Market Insights predicts the worldwide hyperscale data center market will grow at a clip of more than 15% through 2027, while Mordor Intelligence expects China's data center market to grow by more than 35% per year between now and 2029. Chindata is at the intersection of those two tailwinds.
There is something to watch here. Private equity outfit Bain Capital is bidding to acquire the 58% of Chindata it doesn't already own. And Chindata is at least considering the fairly generous privatization offer. If the company makes the deal, no investor will even be able to hold the stock for years.
If Chindata doesn't take the offer, though, take a philosophical view of the acquisition effort and the 33% premium Bain is offering. It says there's real opportunity ahead for the hyperscale data center market, and that Chindata's potential to capture its share of this growth isn't being fully reflected in the stock's price.
James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
