Artificial intelligence stocks are rarer than you might think. Many companies tout AI technology initiatives and machine learning. But there really are few public, pure-play AI stocks.
In general, look for AI stocks that use artificial intelligence technology to improve products or gain a strategic edge. Amid a surge in investor interest in artificial intelligence, be on guard against poor performing companies that tout themselves as plays on AI technology.
Microsoft (MSFT) has increased its stake in startup OpenAI as it aims to take on Google-parent Alphabet (GOOGL) in internet search. Also, Microsoft and Google in early February hosted media events highlighting artificial intelligence initiatives and investments.
ChatGPT is only one of many “generative AI” technologies that could roil a host of industries by creating text, images, video and computer programming code on their own. Generative AI technology already is finding applications in marketing, advertising, drug development, legal contracts, video gaming, customer support and digital art.
“One thing is certain, insightful AI is here and the competition is hotting up for 2023, ‘the year of AI,’ when we can expect an upgrade to ChatGPT thanks to the long-anticipated and hyped GPT-4,” said a JPMorgan report.
The generative AI wars are heating up in marketing. Salesforce (CRM) on March 7 rolled out Einstein GPT, which adds OpenAI’s features across its software platform. Pilot technology will be available first on its Slack messaging tools. Salesforce has used predictive AI tools since 2016.
HubSpot (HUBS) announced trials of “content assistant” and ChatSpot.ai.
Bank of America, Morgan Stanley and Barclays tout chip maker Nvidia (NVDA) and Arista Networks (ANET) as among top AI stocks.
“We see ChatGPT and the surging AI use cases akin to the 2007 iPhone introduction that expanded the mobile landscape and use cases for consumers and businesses,” said a Morgan Stanely report on AI stocks..
Barclays also picks Sprout Social (SPT), Sprinklr (CXM), Iron Mountain (IRM) and Seagate Technology (STX). BofA likes Taiwan Semiconductor Manufacturing (TSMC), Adobe (ADBE), Shutterstock (SSTK) and online advertising firm Appier Group (APPIF).
Prior to ChatGPT’s launch in November, IDC predicted that the conversational AI market will grow at a 37% compound annual growth rate (CAGR) from $3.3 billion in 2021 to just over $16 billion in 2026. Generative AI is expected to impact cybersecurity.
“We see (generative) AI becoming ‘table stakes’ for most software companies,” said Evercore ISI analyst Mark Mahaney in a report. “This generally favors the bigger companies with deeper pockets and access to more data.”
Key to the rise of generative AI are improved natural language processing models that help computers understand the way that humans write and speak. OpenAI is part of a wave of NLP startups that includes AI21 Labs, Anthropic, Cohere and others.
All AI software needs computing power to find patterns and make inferences from large quantities of data. And the race is on to build AI chips for data centers, self-driving cars, robotics, smartphones, drones and other devices.
In addition, Bank of America is bullish on AI and internet companies.
“Use of AI will be critical driver of all things Internet, including content relevance, ad performance, e-commerce conversion, marketplace efficiency and even customer service,” BofA analyst Justin Post said in a recent note to clients.
Cloud service providers are expected to hike investments in artificial intelligence technology. Nvidia beat Wall Street’s estimates for its fiscal fourth quarter as data center chip sales rose 11% to $3.62 billion.
Nvidia provides software development tools to build artificial intelligence applications. Rival Intel (INTC), meanwhile, aims to catch up in AI development tools.
Nvidia faces more competition from AI chip startups Cerebras, Sambanova and Graphcore. Advanced Micro Devices (AMD) is ramping up AI initiatives as well.
Some companies have been aggressive making AI acquisitions. IBM (IBM) has bought at least five artificial intelligence companies since mid-2020. They include Databand.ai, Turbonomic, ReaQta, MyInvenio and WDG Automation.
Alphabet recently acquired Alter for $100 million, an AI avatar startup that enables brands and creators to express virtual identities. The acquisition is aimed at helping Google ramp up its content offerings and compete with other platforms like TikTok.
For many companies, gaining an edge with AI requires ongoing investments in compute, networking and data center infrastructure.
AI usage is exploding in facial and voice recognition technology, medical diagnostics, algorithmic trading, and automated customer service bots.
The top artificial intelligence stocks to buy span chip makers, enterprise software companies and technology giants that utilize AI tools in many applications. Think of cloud computing giants Amazon.com (AMZN), Microsoft and Google.
Also, cloud computing giants sell AI analytical services to business customers.
Amazon itself uses AI to customize online retail offerings and recommend products to website visitors. The e-commerce behemoth also uses robotics and AI at its fulfillments centers. Further, Amazon leverages AI in retail stores, noted a recent Monness, Crespi, Hardt and Co. report to clients. More than 30 Amazon Fresh U.S. stores, over 25 Amazon Go U.S. stores and two Whole Foods Market stores use Just Walk Out payment technology.
Google, of course, uses AI to better parse complex search prompts, helping it to deliver relevant advertising and web results. Plus, Google uses AI tools in digital advertising.
Meanwhile, Salesforce (CRM) rolled out new AI-based tools at its Dreamforce customer conference in September.
Venture capitalist Marc Andreessen once observed how “software is eating the world” by remaking industries through automation. In the same way, artificial intelligence is expected to modernize software.
Amid a shortage in software engineers, low-code programming tools are making it easier for business units to develop AI applications. DataRobot is part of a new wave of AI startups bringing low-code tools to market.
Meanwhile, Snowflake (SNOW) and startups such as Databricks aim to shake up the database market with lightning-fast analysis of “unstructured data” gathered from sensors. One example would be streaming video.
Databricks announced new contributions to multiple opensource projects at its recent AI Summit
Still, corporate adoption of AI technologies is nascent. The majority of organizations are still experimenting with AI technology, said an Accenture (ACN) study. Only 12% are using AI tools at a maturity level that achieves a strong competitive advantage, according to Accenture.
But the AI software market is expected to jump 21.3% to $62.5 billion in 2022, forecasts market research firm Gartner. The research group adds the worldwide AI semiconductor market will grow to more than $70 billion by 2025, up from $23 billion in 2020.
Not every effort succeeds. IBM (IBM) in January sold off Watson Health to private equity firm Francisco Partners. The deal reportedly came in above $1 billion. But IBM had invested much more in Watson. Despite the Watson setback, IBM continues to acquire AI startups.
AI tools are playing a big role in Facebook-parent Meta Platforms (META) legacy business and new initiatives. As it moves into the “metaverse,” Meta said it has built a new artificial intelligence supercomputer. Called the AI Research Supercluster, the Meta computer uses chips from Nvidia.
Meanwhile, Apple (AAPL) continues to build up artificial intelligence assets. It hired former Google scientist Samy Bengio, who left the internet search giant amid turmoil in its artificial intelligence research department.
Microsoft in April 2021 acquired speech recognition software maker Nuance Communications (NUAN), whose artificial intelligence tools are widely used in the health care market. In addition, Microsoft aims to deliver Nuance AI tools to health care customers via its Azure cloud computing platform.
Microsoft, Google and Nvidia have dropped off the IBD Leaderboard, which is IBD’s curated list of leading stocks that stand out on technical and fundamental metrics.
AI technology uses computer algorithms. The software programs aim to mimic the human ability to learn, interpret patterns and make predictions.
“Machine learning” is the most widely used form of AI deployed in industries. Machine learning systems use huge troves of data to train algorithms to recognize patterns and make predictions.
“AI workloads are classified as training or inference,” Oppenheimer analyst Rick Schafer said in a recent note. “Training is the creation of an AI model through repetitive data processing/learning. Training is compute-intensive, requiring the most advanced AI hardware/software. Generally located in hyperscale data centers, we estimate training total addressable market at $21 billion by 2025.”
AI companies to watch include information technology services firms such as IBM, Accenture, and Epam Systems (EPAM).
Research firm IDC estimates that IBM, Accenture and Infosys hold 28% of the $17 billion artificial intelligence IT services market, said a Susquehanna Financial Group report.
In addition, software companies are among artificial intelligence stocks to watch. Many software-as-a-service companies use AI tools.
Bank of America recently upgraded Palantir (PLTR) to buy citing its AI prowess.
Digital media and marketing software maker Adobe (ADBE) at a recent conference strutted out cloud-based tools that will allow companies to better personalize content for customers on a large scale.