Generative AI Sales May Soar 600% by 2028: 2 Brilliant AI Stocks to Buy Now (Hint: Not Palantir)

An article highlights AppLovin (APP) and CoreWeave (CRWV) as AI beneficiaries, noting Morgan Stanley's projection of generative AI revenue reaching $1.1 trillion by 2028. AppLovin, leveraging AI in its adtech software, reported a 40% revenue increase and 149% GAAP earnings growth in Q1, driven by its 'best-in-class' Axon recommendation engine; while CoreWeave, a leading GPU cloud provider for AI applications, saw revenue surge 420% and adjusted operating income rise 550% in Q1, though it faces $7.8 billion in debt and is currently unprofitable.

Analysis

The generative AI market is projected for substantial expansion, with Morgan Stanley forecasting revenues to approach $1.1 trillion by 2028, a more than 600% increase, signaling significant wealth creation opportunities. AppLovin (APP) is strategically positioning itself within this evolving landscape by embedding artificial intelligence into its adtech software; its Axon recommendation engine is described as "best-in-class," and its SparkLabs division utilizes generative AI for personalized ad content. The company demonstrated strong financial momentum in its first quarter, reporting a 40% year-over-year increase in total revenue to $1.4 billion and a 149% surge in GAAP earnings per diluted share to $1.67. This performance was largely fueled by its advertising segment, which is anticipated to grow sales by 69% in the second quarter. A key strategic move was the $800 million divestiture of its mobile games portfolio, which streamlines operations by eliminating a declining segment and allows for intensified focus on its core adtech software and a nascent e-commerce advertising product. While AppLovin trades at 64 times earnings, Wall Street analysts project a 43% annual earnings growth rate through 2026, a figure potentially supported by its consistent outperformance of consensus estimates by an average of 33% in the last six quarters. Concurrently, CoreWeave (CRWV) is emerging as a critical enabler of AI applications through its specialized GPU cloud infrastructure, built exclusively with Nvidia technology. The company's competitive edge is highlighted by its strong performance in MLPerf benchmarks and its early access to new Nvidia systems, such as the Nvidia GB200 NVL72, enabling it to report a 420% year-over-year revenue surge to $981 million and a 550% increase in adjusted operating income to $162 million in its first quarter. However, CoreWeave's aggressive growth is accompanied by substantial financial leverage, with $7.8 billion in long-term debt and lease obligations. Interest payments on this debt consumed approximately one-quarter of its Q1 revenue, contributing to a reported non-GAAP loss of $150 million. Despite a high 73% gross margin and a price-to-sales ratio of 21—not deemed excessive for its growth trajectory—the company's current lack of profitability presents a key risk.

Key Decisions for Investors

• AppLovin (APP) warrants consideration for growth-focused portfolios due to its robust Q1 results, AI integration in adtech, and promising earnings trajectory, although its valuation of 64 times earnings suggests suitability primarily for risk-tolerant investors.
• CoreWeave (CRWV) provides significant exposure to the AI infrastructure boom, highlighted by its 420% Q1 revenue surge and strategic Nvidia partnership, yet its substantial $7.8 billion debt and current lack of profitability necessitate a cautious approach suitable for patient investors comfortable with high volatility.
• Investors should monitor both companies' execution in capitalizing on the generative AI market, specifically AppLovin's e-commerce advertising expansion and CoreWeave's progress towards managing its debt and achieving profitability.