Unveiling Potential: 3 AI Stocks Set to Soar in 2024

The dynamic landscape of artificial intelligence (AI) investments in 2023 propelled some market leaders to new heights, but beneath the surface lie hidden gems waiting to be discovered. In this exploration, three insightful Motley Fool contributors uncover the allure of Atkore (NYSE: ATKR), Sirius XM Holdings (NASDAQ: SIRI), and Mastercard (NYSE: MA) as underappreciated AI investments with significant potential.

Mastercard’s Global Payment Momentum

Mastercard, a behemoth in the payments industry, has set the stage for a remarkable 2024. Positioned as the second-largest payments “railway,” its digital payments network acts as a global conduit for financial transactions. With a 10% increase in currency movement to $2.4 trillion in the 2023 fourth quarter, Mastercard experienced a corresponding 9% boost in net revenue from its payments network. Ancillary services, including cybersecurity and analytics solutions, contributed to a 19% surge, culminating in a total revenue increase of 13% year over year to $6.5 billion.

Mastercard Financial Performance (2023 Q4)

Notably, Mastercard has embraced AI innovation, introducing its generative AI chatbot for security and fraud detection services. This move aligns with the anticipation of a low- to mid-teens percentage growth rate in full-year revenue for 2024, reflecting a slower but healthy global economic expansion. The efficiency of Mastercard’s established railway for money movement, coupled with its consistent profit margins and increasing free cash flow, positions it as a formidable player in the AI landscape.

Mastercard Free Cash Flow Analysis

Mastercard’s stock, though trading at 26 times one-year-forward expected earnings per share (EPS), has proven to be a market-dominating investment over the long term. As it continues to facilitate digital payments worldwide, its tollbooth-style business model is a testament to its enduring success.

Sirius XM’s Unexpected AI Pivot

Sirius XM, traditionally associated with satellite radio, has sprung a surprise by delving into AI technologies. In a recent fourth-quarter earnings call, CEO Jennifer Witz revealed the company’s strategic shift towards AI-powered advertising services. With a consistent 21% to 22% contribution from ad sales to its total revenue, Sirius is gearing up to enhance monetization and efficiency for marketers using generative AI.

Sirius XM Ad Revenue Composition

While specifics on Sirius’ AI-based advertising plans are pending, the potential impact on revenue streams is significant. As the company simplifies its stock structure and adjusts its board of directors, coupled with a favorable stock price, Sirius XM emerges as an intriguing AI-driven advertising market participant. The convergence of innovative strategies, management changes, and a compelling stock valuation make Sirius XM a compelling option for investors seeking AI exposure in 2024.

Atkore: Riding the U.S. Manufacturing Boom

Amidst the surge in AI and the CHIPS Act’s influence on semiconductor manufacturing, Atkore, a provider of electrical and infrastructure materials, stands out. The anticipated increase in U.S. semiconductor manufacturing aligns with Atkore’s role in supplying nonresidential construction materials. Despite a recent decline in revenue and earnings, attributed to normalized pricing post-2021 inflation, the company’s underlying strength is evident.

Atkore Financial Performance (2023 Q4)

Moreover, Atkore’s results beat analyst expectations, and the company actually increased full-year EPS guidance to $17 at the midpoint, up $0.50 from the outlook last quarter. Even better, Atkore continues to repurchase stock at bargain-basement valuations, with another $96 million in share repurchases last quarter. And the company will pay its first-ever dividend of $0.32 on March 15. That annualizes to $1.28, or about a 0.9% yield at these price levels. While not exactly a high dividend yield, that payout seems set to grow handsomely in the future.

Atkore Stock Buyback and Dividend

In conclusion, these three AI stocks—Mastercard, Sirius XM, and Atkore—reveal untapped potential in the evolving AI landscape. As investors seek diversification and innovation, these stocks could be the key to unlocking significant returns in 2024.