The Best AI Investments — As Picked by AI
Investors interested in buying high and selling higher should hold shares of companies in the Artificial Intelligence (AI) sector. In its simplest sense, AI uses computer algorithms to sort through billions of bits of data to recognize patterns, then analyzes the patterns to make decisions and predictions, while, if employing machine learning, simultaneously learning from mistakes. The learning process means AI programs may become more intelligent over time, causing doomsayers to worry that eventually AI will be able to take over the world.
Until that happens, however, investors can profit by using AI itself to help find publicly traded, pure-play AI companies most likely to benefit from growth in the sector. Perplexity Pro, the premium version of the Perplexity search engine that combines four of the latest AI models, determined that Palantir Technologies (PLTR) and Nvidia (NVDA) look like the best prospective investments among publicly-traded AI companies.
Consulting and research firms such as McKinsey, PwC, Statista and Grand View Research all say the global market for AI is expected to expand dramatically over the next few years. The question is whether current share prices have already priced in the expected growth to the point where even minor disappointments can lead to major selloffs.
The Rule of 40 is one way to evaluate the investment merits of a software-as-a-service (SaaS) company. To pass the threshold, a SaaS company’s annual revenue growth rate plus its profit margin should add up to at least 40%. For example, an early-stage company can pass if its profit margin is -10% but its revenue growth rate is 50%, while a more established name can pass if its revenue growth rate is only 10% but its profit margin is 30%.
SaaS companies are aware of the rule, and while revenue growth is difficult to inflate legally, some have been known to tweak the definition of profit margin to achieve a better score. For example, a company may use “adjusted operating margin” as a profit margin instead of, say, EBITDA (earnings before interest, taxes, depreciation and amortization) margin or Generally Accepted Accounting Principles (GAAP) margin, usually resulting in a higher Rule of 40 score.
The recent surge in AI-related stocks means their shares are best suited for position traders – those who buy and sell stocks less frequently than day or momentum traders but more frequently than passive buy-and-hold investors who may be assembling a portfolio for retirement. A position trader will buy and hold a stock for several weeks, months or years in hopes of riding long-term trends to outperform the broad market, and may use a sell-on-stop order to limit losses.
Canadian investors can buy Canadian-dollar hedged versions of U.S. companies through CIBC’s series of Canadian Depositary Receipts (CDRs) that trade on the Toronto Stock Exchange. CIBC’s list of about 100 names includes Palantir (PLTR.CA) and Nvidia (NVDA.CA).
Palantir Technologies Inc.
(PLTR/Nasdaq)
Denver, Colorado-based Palantir is a developer of advanced artificial intelligence designed to help governments and agencies in the United States and its allies protect themselves from hostile foreign governments and other malicious interlopers. The company is hated by the left for a variety of reasons, including contracts it has with the U.S. government to help track and deport illegal immigrants, and a contract Palantir holds with the Israeli government to help with surveillance and military targeting in Gaza.
Palantir was originally established as a defence contractor by PayPal co-founder Peter Thiel in 2003, then expanded to serve corporate clients. In 2020, the company moved to Denver from Silicon Valley and went public later that year.
Palantir’s software platforms include Palantir Gotham, an intelligence and defence tool used by militaries and counter-terrorism agencies, and Palantir Foundry, a software platform used in the healthcare sector, and by commercial and civil government customers. The company has been criticized for developing products for governments, such as facial recognition software, that are viewed as invading citizens’ privacy.
A 30 May 2025, New York Times article1 suggested Palantir was helping the Trump administration to create a “master list” on U.S. citizens’ data by merging databases from various government agencies. The article prompted a rebuttal from the company via its blog2, which said Palantir is a staunch defender of privacy, has held contracts with different administrations for decades and has no such nefarious plans. For investors, the “sticky” recurring revenue streams from such government contracts are a solid benefit.
On 5 August 2025, Palantir reported it had generated US$404.5 million in net income (US$0.13 per share) on US$1.004 billion in revenue for its fiscal 2025 second quarter3. The revenue was up 48% over the same period in 2024. The company’s U.S. commercial business nearly doubled in twelve months, generating US$306 million in revenue, a 93% increase from $159 million the year before.
The company raised its guidance for 2025 total revenue to between US$4.142 billion and US$4.15 billion, with U.S. commercial revenue expected to come in at more than US$1.3 billion, representing a growth rate of at least 85%.
CEO Alex Karp said Palantir’s Rule of 40 score was 94%—“once again obliterating the metric.”4 The score was made up of a 68% growth in revenue as measured between the second quarters of 2024 and 2025, plus an adjusted operating margin of 46%. Although critics have argued against using adjusted operating margin as profit margin, Palantir’s growth and profitability are strong by any metric.
As of mid-September 2025, the company’s share price was about US$171, up from the US$160 range it had been over the previous month. The shares have still more than doubled in 2025, and are up more than fivefold in the past two years. Palantir’s growth, financial strength and momentum are exemplary, but valuation measures indicate the stock is not suitable for buy-and-hold investors and must be sold at the first sign of trouble. Financial sites have PLTR’s shares trading at 570 times trailing earnings, 200 times forward earnings, 125 times sales per share and 69 times book value per share.
Many analysts view the stock as overvalued and warn that the slightest disappointment could cause the share price to plunge. The price has attracted short sellers, who bet against a company by borrowing and selling its stock in hopes of buying back at a lower price. As of mid-September 2025, Palantir’s short interest represented about 2.3% of its share float, behind only Tesla (3.1%), Intel (2.5%) and Advanced Micro Devices (2.4%), figures from the MarketBeat site show.
Nvidia Inc.
Nvidia, founded in 1993, invented the graphics processing unit (GPU) in 1999, which allowed 3D graphics in the video game industry. The company has since expanded to serve markets such as cryptocurrency mining and AI. Nvidia’s Compute Unified Device Architecture (CUDA) allows software developers to divide work into many separate packages, dramatically increasing speed. CUDA helped in the development of the AlexNet neural network, a form of AI that accurately identifies images.
On 27 August 2025, Nvidia released results for the second quarter of its fiscal year 2026. Net income was US$26.4 billion or US$1.08 per share, up 59% from the same quarter of 2024 and up 41% from the previous quarter, on revenue of US$46.74 billion, up 56% from the same quarter last year. Revenue for the next quarter is forecast at US$54.0 billion, plus or minus 2%. The company omitted H20 shipments to China in its guidance. However, CEO Jensen Huang predicted the AI market in China will grow by 50% in 2026.
The huge Chinese market means Nvidia’s shares react to any news on whether U.S. President Trump allows shipments there, what type of chips are allowed to be exported and whether the Trump Administration is legally able to impose an export tax on such deliveries. The current situation means Nvidia may ship its current-generation H20 chips to China on payment of a 15% export tax but may not send China its latest Blackwell chip.
As of mid-September 2025, the company’s share price was about US$178, making it the largest company in the world with a market capitalization (shares times share price) of US$4.32 trillion, just behind the entire Gross Domestic Product (GDP) of India or Germany. The shares dipped below US$100 in April 2025 and traded below US$150 until late June, then began a steady climb. Like Palantir, Nvidia’s growth, financial strength and momentum are exemplary, but unlike Palantir, Nvidia’s shares are less optimistically priced. A variety of sites have NVDA’s shares trading at about 50 times trailing earnings, 40 times forward earnings, 28 times sales per share and 43 times book value per share.
As of mid-September 2025, Nvidia’s short interest represented about 0.84% of its share float, relatively low compared with stocks such as Tesla, AMD and Intel, figures from the MarketBeat site show.
Conclusion
Giant corporations in the AI sector have many attractive features for investors. Size, a strong balance sheet and strong revenue growth are all positive features. However, there is always the danger that everyone else knows this and the shares are priced for perfection. Nvidia looks like a safer bet than Palantir, but in each case, shareholders should watch their holdings carefully and be prepared to sell. They are suited for active traders and not for value investors who simply buy and hold.
Richard Morrison, CIM, is a former editor and investment columnist at the Financial Post. richarddmorrison@yahoo.ca
1 https://www.nytimes.com/2025/05/30/technology/trump-palantir-data-americans.html
2 https://blog.palantir.com/correcting-the-record-responses-to-the-may-30-2025-new-york-times-article-on-palantir-55b60ae107da
3 https://investors.palantir.com/news-details/2025/Palantir-Reports-Q2-2025-U-S--Comm-Revenue-Growth-of-93-YY-and-Revenue-Growth-of-48-YY-Guides-Q3-Revenue-to-50-YY-Raises-FY-2025-Revenue-Guidance-to-45-YY-and-U-S--Comm-Revenue-Guidance-to-85-YY-Crushing-Consensus-Expectations/
4 https://investors.palantir.com/news-details/2025/Palantir-Reports-Q2-2025-U-S--Comm-Revenue-Growth-of-93-YY-and-Revenue-Growth-of-48-YY-Guides-Q3-Revenue-to-50-YY-Raises-FY-2025-Revenue-Guidance-to-45-YY-and-U-S--Comm-Revenue-Guidance-to-85-YY-Crushing-Consensus-Expectations/