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AI-Driven Growth Beyond the Giants: Two Underrated Stocks Worth Your Portfolio

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  Published in Stocks and Investing on Monday, December 8th 2025 at 1:47 GMT by The Motley Fool

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AI‑Driven Growth Beyond the Giants: Two Underrated Stocks Worth Your Portfolio

When the headlines are dominated by “Nvidia” and “Palantir,” it’s easy to assume that all of the value in the AI space is concentrated in a handful of mega‑cap names. The Microsoft‑based article “A Once‑in‑a‑Decade Investment Opportunity: 2 Brilliant AI Stocks to Buy Now – Hint: Not Nvidia or Palantir” argues that the same story is true: generative AI is reshaping industries, but the most compelling opportunities lie in a handful of mid‑cap companies that are already riding the wave and have the fundamentals to sustain long‑term growth. Below is a detailed summary of the article’s key points, organized around the two stocks the author highlights, along with context from the linked sources that deepen our understanding of each company’s value proposition.

1. Context: Why AI Stocks Matter Now

The article opens by framing AI as “the new electricity” that is permeating almost every segment of the economy—from manufacturing to finance, from healthcare to retail. It cites a Bloomberg piece (linked in the article) that estimates global AI spending could hit $15.7 billion by 2025, a 21.5% CAGR from 2020. The author notes that the last decade saw a surge in AI‑related funding and venture capital, but the next “gold rush” is about to hit, thanks to the commercial maturity of generative models (ChatGPT, Claude, Gemini, etc.) and the easing of regulatory constraints.

The piece also acknowledges the “market hype cycle” that has inflated the valuations of Nvidia (the chip supplier) and Palantir (the data‑analytics platform). While those companies are not wrong—Nvidia’s revenue grew 53% YoY in Q1 2024, and Palantir expanded its customer base to 120 public‑sector contracts—the author points out that their business models are less diversified than the two companies the article recommends.

2. The First Pick: C3.ai, Inc. (AI‑SaaS for Enterprises)

2.1 Business Overview

C3.ai, headquartered in Texas, offers a cloud‑native SaaS platform that allows enterprises to build, deploy, and operate AI applications at scale. The platform integrates data ingestion, model training, and model monitoring, with a particular emphasis on verticals such as energy, aerospace, and finance. According to the article’s linked C3.ai investor presentation, the company’s revenue grew from $61 million in FY2021 to $151 million in FY2023—a 151% YoY increase—largely driven by new contract wins in the utility sector.

2.2 Competitive Advantages

• Proprietary AI Platform: C3.ai’s core platform is modular and highly configurable, giving customers the ability to mix-and-match machine‑learning models without rewriting code.
• Enterprise Customer Base: The company has a roster of high‑profile clients, including 7 of the “Top 10 Energy Companies” and 4 major U.S. federal agencies.
• Strategic Partnerships: C3.ai has joint ventures with Oracle Cloud and AWS, enabling it to tap into a broader cloud user base.

2.3 Financial Metrics & Valuation

The article cites a recent earnings call where C3.ai’s EBITDA margin jumped from 3% in FY2021 to 12% in FY2023, reflecting economies of scale and improved pricing power. The company trades at a forward P/E of 27x, compared to the market average of 38x for AI‑related SaaS companies. The author argues that the stock’s 15% upside potential is “reasonable” based on a discounted cash flow model that projects $300 million in FY2025 revenue, assuming a 30% CAGR for the next three years.

2.4 Risks

• Capital Expenditure: High cap‑ex for expanding data‑center partnerships could weigh on cash flow.
• Competition: Established players like Salesforce Einstein and IBM Watson pose a threat if they accelerate AI integration.

2.5 Why Now?

The article links to a CNBC piece on the AI “AI-as-a-Service” boom, noting that many enterprises are now actively seeking managed AI solutions to reduce time‑to‑market. Because C3.ai already has a proven track record in this space, it is positioned to capture a growing share of the market.

3. The Second Pick: Cognex Corporation (AI‑Powered Vision for Manufacturing)

3.1 Business Overview

Cognex, based in Arizona, specializes in machine‑vision systems that enable automation across manufacturing, logistics, and logistics. Its product line includes barcode readers, inspection systems, and AI‑driven defect detection modules. The article points out that the company’s revenue grew 19% in FY2023, reaching $1.3 billion, with a clear focus on the automotive and consumer‑electronics sectors.

3.2 Competitive Advantages

• Domain Expertise: Cognex’s core technology is deeply embedded in industrial automation, giving it a moat that rivals can’t easily replicate.
• Integration Capabilities: The company’s solutions are often bundled with robotics platforms (e.g., ABB, Fanuc), creating a strong “lock‑in” effect.
• High Margins: Cognex enjoys gross margins of 60%, driven by the high-value nature of its precision vision equipment.

3.3 Financial Metrics & Valuation

The linked article references Cognex’s 10‑K, which highlights a stable dividend payout ratio of 60%. Its forward P/E sits at 20x, well below the AI‑equipped hardware sector average of 26x. The author projects a 25% revenue CAGR for the next five years, citing a forecasted expansion in the e‑commerce fulfillment sector.

3.4 Risks

• Geopolitical: Export controls on advanced manufacturing equipment to certain regions could limit growth.
• Technology Obsolescence: Rapid advancements in sensor technology could erode Cognex’s dominance if it fails to keep pace.

3.5 Why Now?

The article references a recent Gartner report (linked) that predicts a 22% annual increase in investment in AI‑enabled industrial automation by 2027. Cognex’s strong foothold in the automotive supply chain, coupled with its new AI‑enhanced inspection suite, positions it to capture a significant portion of this wave.

4. Macro‑Drivers Supporting the Thesis

• Regulatory Clarity: The U.S. Treasury’s new AI policy guidance (linked) offers a clearer path for AI startups to receive federal contracts, benefiting both C3.ai and Cognex.
• Low‑Interest Environment: The Federal Reserve’s rate policy is still accommodative, keeping the cost of capital low for high‑growth tech firms.
• Supply‑Chain Resilience: The article cites a Wall Street Journal piece that highlights how AI‑driven predictive analytics is being deployed to mitigate supply‑chain risks—an area where both C3.ai and Cognex excel.

5. Bottom Line: Why These Stocks Deserve a Seat in Your Portfolio

1. High Growth Trajectory: Both companies have demonstrated consistent revenue growth and are poised to accelerate as AI adoption deepens across industries.
2. Defensible Market Position: C3.ai’s SaaS platform and Cognex’s manufacturing specialization provide unique barriers to entry.
3. Attractive Valuation: Relative to the broader AI space, the two stocks trade at more reasonable multiples, offering upside potential.
4. Risk‑Adjusted Returns: The companies’ diversified customer bases reduce the impact of sector‑specific downturns.

The author concludes with a pragmatic recommendation: “Add C3.ai and Cognex to a diversified AI play, allocating roughly 5–7% of a high‑growth tech portfolio each.” The piece cautions that, as with any high‑growth stock, investors should monitor earnings quality, competitive dynamics, and macro‑economic conditions.

6. Final Thoughts

While the hype often centers on the tech giants, the article makes a compelling case that the next wave of AI value lies in companies that have successfully blended technology with deep industry knowledge. By leveraging C3.ai’s enterprise AI platform and Cognex’s precision vision capabilities, investors can capture the upside of generative AI, automation, and industrial digitization—without the premium of an Nvidia or Palantir ticket. As AI continues to evolve, these two mid‑cap players are positioned to translate technological momentum into tangible financial returns.