3 Software-as-a-Service (SaaS) Stocks with Big Upside from AI
Key Points
Palantir has become one of the most important SaaS companies on the planet.
Microsoft is deeply embedded with enterprise customers and appears to be an AI beneficiary.
GitLab is a cheap stock with big upside potential.
- 10 stocks we like better than Palantir Technologies ›
When it comes to artificial intelligence (AI) and software-as-a-service (SaaS) stocks, investors have generally taken a cautious approach. Between AI disintermediation, vibe coding, and the potential shift to more consumption-based business models, investors have identified several risks that could impact the industry.
However, not all SaaS companies are alike, and it is more likely that software companies will play a critical role in the future of AI. One of the big reasons for this is that they are model-agnostic. If AI models shift in leadership or move more to commoditization, organizations don't want to be tied to a single model. At the same time, software is often deeply embedded within organizations and has important compliance and security guardrails in place, making this a strong option for AI to be deployed.
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Against that backdrop, let's look at three SaaS stocks with big upside from AI.
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Palantir Technologies
When it comes to benefiting from AI, no SaaS company has been better at it than Palantir Technologies (NASDAQ: PLTR). It has taken its roots as a data-gathering and analytics company for the U.S. government and created one of the most important AI platforms on the planet.
In simple terms, its AI platform essentially acts as an AI operating system that significantly decreases potentially harmful AI hallucinations and makes AI more useful to organizations in the real world. The strength of the platform can be seen in the company's surging revenue growth and remarkable net dollar retention, which came in at 157% in Q2.
While the stock is not cheap, Palantir has the potential to grow to become one of the largest companies in the world. AIP can be used to help solve problems across various departments and industries, making its growth runway just enormous.
Microsoft
Among megacap tech stocks, Microsoft (NASDAQ: MSFT) has been one of the most underappreciated. The company remains the 800-pound gorilla of enterprise software, and its Microsoft 365 suite of productivity tools remains deeply entrenched within enterprises.
Big organizations tend to be cautious about new technologies like AI, so they've been turning to a trusted leader like Microsoft to help them incorporate AI into their workflows. This is leading to strong adoption of Microsoft's AI assistant, Copilot, and is helping drive strong growth in its enterprise software segment. This should remain a strong growth driver for the company.
At the same time, Microsoft's cloud computing unit, Azure, has been growing rapidly and has one of the largest backlogs in the space. The company is also just starting to place greater emphasis on developing its own custom AI chips and foundational AI models, which should help improve margins over time. Throw in a 27% stake in OpenAI, and this is a SaaS stock with a lot of potential AI upside.
GitLab
Turning to a much smaller SaaS company, GitLab (NASDAQ: GTLB) has all the ingredients to see its stock surge higher. The stock is cheap, trading at an attractive price-to-sales multiple of just 5.5 times based on fiscal 2028 (ending January 2028) analyst estimates, amid investor concerns about the impact of AI on its DevSecOps (development, security, and operations) platform.
However, GitLab looks much more likely to be an AI winner than a loser. AI is driving more software development, not less, and all of it still needs to be done in a secure environment. Meanwhile, commentary from Microsoft, which owns code repository GitHub, and JFrog, which provides software supply chain solutions in the DevSecOps sector, point to strength in the sector. Microsoft also noted growth being driven by its move to a hybrid consumption model, which is also something that GitLab has moved toward with its Duo Agent Platform.
Given its valuation and AI-driven growth, GitLab stock has big potential upside from here.
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Geoffrey Seiler has positions in GitLab. The Motley Fool has positions in and recommends Microsoft and Palantir Technologies. The Motley Fool recommends GitLab and JFrog. The Motley Fool has a disclosure policy.
