Motley Fool’s “Phase 2” AI Stocks – Make 8,000x Your Money?

The Motley Fool recently sent out an email about “an incredible opportunity that could be as game-changing as the internet boom“.

It's all about “Phase 2” of artificial intelligence (AI), which is currently unfolding. The Fool's experts have identified several stocks that are perfectly positioned to deliver “mind-blowing returns,” and we're going to reveal them all.

The Teaser

The email starts by saying that during the internet boom, so-called “Phase 2″ stocks like Amazon outperformed Phase 1 by as much as 8,000 times”.

Motley Fool's Stock Advisor team has historically outperformed the market by more than four times since launching in February 2002. So it's not Johnny-anybody saying this on a Tuesday afternoon.

This is the first Motley Fool teaser we are reviewing, but we have covered a few artificial intelligence-related pitches, including Adam O'Dell's “Tiny Company Fueling the $200 Trillion AI Revolution” and Ross Givens’ $8 AI Savior Stock – Biggest Investment Opportunity of the AI Era?

By “Phase 1” of the internet boom, The Fool is talking about the very first internet stocks.

If we look only at the companies that survived those fast times in one piece, like Yahoo, Cisco Systems, and Akamai Technologies, and discount the many others that didn't – think AltaVista and uBid, we can see that Amazon has done slightly better over the past two decades:

The Fool believes history is about to repeat itself when it comes to the next big technology wave – artificial intelligence (AI).

By 2030, the AI market is estimated to be worth 70x more than it is today, making it worth something along the lines of $14 Trillion!

The high double-digit annual growth rate is no doubt going to create plenty of opportunities, but the comparison to the dot-com boom (and bust), is apples to oranges.

For starters, most internet-based businesses going public in the late 90s were pre-revenue. That's not the case today, with the vast majority of chipmakers, computing service providers, and others being tangible businesses, serving well-defined niches.

Another major difference is that “Phase 2” internet stocks such as Amazon, Microsoft, and Google, are the incumbent leaders of Phase 1 AI today.

This creates an interesting dynamic that makes one wonder when “Phase 2” of AI will kick off and what stocks will define it.

The Pitch

The Fool's pitch is for exclusive access to 5 Phase 2 AI stocks if we join its Stock Advisor community.

A one-year membership costs $59 and comes equipped with a 30-day money-back guarantee, two new stock picks every month, access to dozens of analyst reports, and an online community of individual investors.

What is “Phase 2” AI?

If generative AI, chatbots, and GPU chips are “Phase 1” AI then robotics, mass automation of tasks, and advanced chips will be “Phase 2.”

Most AI experts seem to concur.

According to a recent survey of nearly 3,000 researchers, most agreed that AI will achieve significant milestones as early as 2028.

This means “Phase 2” is already well underway.

We have seen Tesla roll out its Optimus robot prototype, significant automation is happening at every level of society, and AI chips are already in production.

So the rate of advancement is outpacing that of previous tech booms.

Finding the Next Nvidia

Attempting to predict the next stock to go up by 345,000% is as perilous as making a honey badger a house pet.

However, that's not going to stop some fools from trying.

That's what The Motley Fool is doing, saying they have found one stock “269x smaller than Nvidia that is perfectly positioned to thrive as Phase 2 unfolds“.

Let's try to find out what it is, along with the Fool's other picks.

Revealing the Motley Fool's “Phase 2” AI Stocks

The Fool says these picks target 70x growth that “Phase 2” presents.

We don't get much in the way of clues, but what we do get may be enough…

First Fool Stock

• This company is 269x smaller than Nvidia and is a key player in AI-enhanced cybersecurity.

CyberArk Software Ltd. (Nasdaq: CYBR) is the likely pick.

• CyberArk is an information security company and at a market cap of $13.9 billion, it is almost exactly 269x smaller than Nvidia's $3.5 Trillion valuation.

Second Fool Stock

• A stock 87X smaller than Microsoft. It is an AI-driven CRM powerhouse revolutionizing how small and medium-sized businesses operate.

This sounds like HubSpot Inc. (NYSE: HUBS).

• HUB provides software tools and a CRM for all kinds of businesses and its $38 billion market cap, makes it 87x smaller than Microsoft.

Third Fool Stock

• The largest stock of the bunch, it is a leader in AI-driven business automation, trusted by 85% of the Fortune 500, and 15x smaller than Microsoft.

ServiceNow Inc. (NYSE: NOW) is the pick here.

• The company bills itself as the AI platform for business transformation, serves approximately 85% of the Fortune 500, and its $230 billion market cap makes it just about 15x smaller than Microsoft.

Unfortunately, this is where the clues stop and nothing is known about the Fool's last two “Phase 2” picks.

Make 879% On Average?

The Motley Fool's Stock Advisor service boasts an average return on all recommendations of 879%.

How likely are the “Phase 2” picks to continue this streak?

Let's start with the top pick, CyberArk.

The company is an early leader in identity security, which is a cybersecurity niche focused on protecting organizations from unauthorized access to accounts and resources.

It was founded back in 1999 and has massively benefitted from the rise in cyber crimes over the past two decades, growing revenue by double digits annually.

Despite this, cash flow has been non-existent, indicating that management hasn't been effective at returning capital to shareholders.

For me, a good business starts with good management.

Moving on to the second Fool stock, HubSpot.

Getting AI into the hands of small/mid-size businesses is a massive opportunity and HubSpot has begun to do this.

In its Q3 report, HubSpot's CEO noted a “relentless focus on innovation with AI.”

Unlike CyberArk, HUBS is cash-flow-positive with a 17% operating margin. Not great for an asset-light SaaS business, but not bad.

I expect its customer count and profitability to continue growing.

Now we arrive at ServiceNow.

Its stock has had a good run this year, up 63%. As a result, ServiceNow stock trades at a forward P/E of 66x.

The business has good, but not great underlying economics, similar to HUBS, so I would be prone to wait for the stock to pull back a bit.

Out of the three Fool picks, HubSpot looks like the one to be most excited about and the one most likely to deliver a triple-digit return or more over the long term.

Quick Recap & Conclusion

• The Motley Fool says artificial intelligence is transitioning to “Phase 2” and its experts have identified several stocks that are perfectly positioned to profit.
• “Phase 2” is well underway, with robotics, mass automation of tasks, and advanced chips already in production. But what is the best way to profit from it?
• This is only disclosed in a report called 5 Phase 2 AI stocks. It is ours if we join the Fool's Stock Advisor community, which costs $59 for the first year.
• In the Fool's email, only single-sentence clues were given on three of the five picks and we revealed them all for free – CyberArk Software Ltd. (Nasdaq: CYBR), HubSpot Inc. (NYSE: HUBS), and ServiceNow Inc. (NYSE: NOW).
• HubSpot will be the clear winner and an easy multi-bagger if it is successful in its mission to bring AI automation tools to small/mid-size businesses.

Which “Phase 2” AI stock is your favorite? Tell us in the comments.