AI Stocks: The need to watch out for poorly performing companies announcing AI product roadmaps
Wall Street analysts are racing to tout the best artificial intelligence stocks amid a surge in investor interest. On company earnings calls, the number of times management mentions artificial intelligence has jumped. But if you’re looking for the best AI stocks, it’s a good time to be cautious amid the hype.
In general, look for AI stocks that use artificial intelligence to improve products or gain a strategic edge. For example, Coca-Cola (KO) has launched its new AI-inspired “Masterpiece” advertising campaign.
Meanwhile, be on guard against poorly performing companies that suddenly trumpet AI product roadmaps.
Further, AI technology uses computer algorithms. The software programs aim to mimic the human ability to learn, interpret patterns and make predictions. The newest forms of AI generate content. There’s also growing concern over AI’s potential social, economic and security ramifications.
The top artificial intelligence stocks to buy span chipmakers, software companies, cloud computing and technology giants that utilize AI tools in many applications.
Meanwhile, Apple’s (AAPL) Worldwide Developers Conference, or WWDC, kicks off June 5. Despite investments, Apple seems to be lagging in AI chatbot technology. Wedbush analyst Daniel Ives expects Chief Executive Tim Cook to finally open up about its AI plans.
AI Stocks: OpenAI Emerges
“While every tech stalwart has announced its own AI strategy with Microsoft/ChatGPT front and center, Apple has been very quiet and non-existent on this front so far,” Ives said in a note to clients. “We believe this is about to change (at WWDC) as we are expecting Cook & Co. to discuss Apple’s AI strategy looking ahead and how the company can integrate and ultimately monetize its customer base around future generative AI coming from Cupertino.”
Shares in Nvidia (NVDA), the leading maker of AI chips, have vaulted 164% in 2023. NVDA stock jumped on first-quarter earnings that topped estimates as well as a strong outlook. Nvidia’s market cap has approached $1 trillion. Shares in chipmaker Marvell Technology (MRVL) also jumped on Nvidia’s AI-driven outlook.
Startup OpenAI’s 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, video gaming, customer support and digital art.
Also, Microsoft (MSFT) continues to leverage its strategic stake in OpenAI as it aims to take on Google in internet search and office productivity tools. It’s also forming closer ties with Nvidia.
Amid the buzz over AI stocks, Palantir hit a 52-week high on June 1. PLTR stock has jumped 126% in 2023.
Meanwhile, high-flying C3.aiAI sold off on a disappointing fiscal 2024 outlook.
Cloud computing giants Amazon.com (AMZN), Microsoft and Alphabet’s (GOOGL) Google sell AI analytical services to business customers. With cloud revenue growth slowing, they’re pouring money into artificial intelligence. Microsoft’s Azure OpenAI customers now top 4,500, up 80% from 2,500 disclosed in mid-April.
Artificial Intelligence Stocks: Cloud Boom
“We believe hyperscalers such as Alphabet, Meta and Microsoft with large data (holdings), software expertise, and cloud infrastructure cost advantages, along with strategic ‘picks and shovels’ suppliers in the AI value chain like Nvidia and Amazon Web Services, are likely to be near-term beneficiaries of the shift to generative AI,” William Blair analyst Ralph Schackart said in a recent note. “Longer-term beneficiaries are too early to call.”
One key to the rise of generative AI is 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 and Cohere. Anthropic has introduced a competitor to ChatGPT called “Claude.”
Meanwhile, Anthropic on May 23 announced it has raised $450 million in a funding round led by Spark Capital. Google, Salesforce (CRM), Sound Ventures and Zoom Video Communications (ZM) took part in the funding.
As software companies integrate generative AI tools into products, their customers will spend more on software, analysts say. For example, TD Cowen recently estimated in a note to clients that generative AI software spending will boom from $1 billion in 2022 to $81 billion in 2027, representing a 190%, five-year compound annual growth rate.
AI Stocks Span Chips, Software
Investors should be cautious amid the AI hype, Solita Marcelli, UBS chief investment officer for the Americas, said in a recent note.
“Looking ahead, we see artificial intelligence as a broad horizontal technology that will impact every industry across every region of the global economy, driven by gains in computer power, systems development, but especially ever-growing amounts of data,” she said. “We think companies that have invested in the infrastructure and operations to capture vast amounts of customer data are in the pole position.”
Nvidia at its GTC conference announced a wide-ranging portfolio of AI products, including new graphics processing units, data center hardware, AI software models and AI as a service. NVDA stock belongs to IBD Leaderboard, IBD’s curated list of leading stocks that stand out on technical and fundamental metrics.
For many companies, gaining an edge with AI requires ongoing investments in computing, networking and data center infrastructure.
Bank of America, Morgan Stanley and Barclays tout chipmaker Nvidia and Arista Networks (ANET) as top AI stocks. Internet data centers will need more computing power and network bandwidth to process AI workloads.
TD Cowen’s top picks in AI stocks include Google, Microsoft and Nvidia.
Artificial Intelligence Venture Funding
Despite the banking crisis, venture capital is flowing to AI startups. Andreessen Horowitz led a $150 million funding round for Character.AI, which now has a valuation of over $1 billion.
Meanwhile, AI startup Adept recently raised $350 million and is also at a valuation of over $1 billion. Adept has studied how humans use computers — from browsing the internet to navigating a complex enterprise software tool — to build an AI model that can turn a text command into sets of actions.
AI usage is exploding in facial and voice recognition technology, medical diagnostics, algorithmic trading, and automated customer-service bots.
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.
Nvidia provides software development tools to build artificial intelligence applications. Rival Intel (INTC), meanwhile, aims to catch up.
Microsoft reportedly is working with Advanced Micro Devices (AMD) to develop AI chips. AMD has been ramping up AI initiatives.
Also, Nvidia faces more competition from AI chip startups Cerebras, Sambanova and Graphcore.
Tech Giants Among Best Artificial Intelligence Stocks
Meanwhile, tech giants are expanding AI initiatives.
In e-commerce, Amazon plans to add ChatGPT-style search to its online store.
Amazon for years has used 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.
At the Google I/O 2023 developers event on May 10, Alphabet showcased how generative AI will be integrated into search, maps, Workspace, photos, cloud computing and Android devices. Also, Google plans to unveil more of its ad strategy amid the emergence of generative AI at Google Marketing Live on May 23.
AI tools are playing a big role in Facebook-parent Meta’s (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.
Also, Meta on May 18 hosted an “AI infrastructure” event. Meta disclosed plans to build custom AI chips to be used in its data centers. The new Meta Training and Inference Accelerator, or MTIA, is due out in 2025.
Top AI Stocks: Software Market Upside
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.
The generative AI wars are heating up in marketing. Salesforce in March 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.
Meanwhile, Adobe (ADBE) on March 21 unveiled generative artificial intelligence services for creative professionals and marketers. They include Adobe Firefly, a new family of creative generative AI models focused initially on image generation and text effects.
Software maker Atlassian (TEAM) announced “Atlassian Intelligence” at a recent user conference. It embeds OpenAI and large language model technology as a foundational element across all the company’s cloud products.
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.
In addition, Databricks announced new contributions to multiple open-source projects at its recent AI Summit.
IT Services Firms Make Acquisitions
Still, corporate adoption of AI technologies is nascent. The majority of organizations are still experimenting with AI technology, said an Accenture (ACN) study.
Artificial intelligence stocks to watch include information technology services firms such as IBM, Accenture, and Epam Systems (EPAM).
Not every effort succeeds. IBM sold off Watson Health to private equity firm Francisco Partners. Amid the rise of generative AI, IBM aims to rebound with Watson Code Assistant.
Meanwhile, IBM continues to acquire artificial intelligence companies, including Databand.ai, Turbonomic, ReaQta, MyInvenio and WDG Automation.
Also, Accenture also has been a big buyer of AI startups.
This article was reported by Investors.com
