Wall Street analysts are racing to tout the best artificial intelligence stocks amid a surge in investor interest. On company earnings calls, management mentions of artificial intelligence have jumped. If you’re looking for the best AI stocks, it’s a good time to be cautious.
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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 poor performing companies that suddenly call themselves leaders in AI technology.
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. Meanwhile, there’s growing concern over AI’s potential social, economic and security ramifications.
Sam Altman, chief executive of ChatGPT creator OpenAI, is scheduled to testify in Congress for the first time on May 16. The “godfather of AI,” Geoffrey Hinton, in early May said he was leaving Google. He warned of AI’s negative impact on humanity.
Meanwhile, 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.
The top artificial intelligence stocks to buy span chip makers, enterprise software companies and technology giants that utilize AI tools in many applications.
Best AI Stocks: Apple Not Among Them?
Think of cloud computing giants Amazon.com (AMZN), Microsoft (MSFT) and Alphabet‘s (GOOGL) Google. With cloud revenue growth slowing, they’re hiking spending on artificial intelligence. Despite investments, Apple (AAPL) has lagged in chatbot technology.
Chip maker Nvidia (NVDA) 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 the IBD Leaderboard. It’s IBD’s curated list of leading stocks that stand out on technical and fundamental metrics.
Microsoft continues to leverage its strategic stake in OpenAI as it aims to take on Google in internet search and office productivity tools. Meanwhile, OpenAI in March launched its next-generation chatbot technology.
It’s called GPT-4. The new language model is multi-modal. That means it accepts text, speech, images and video as inputs.
Meanwhile, Tesla (TSLA) founder and Twitter owner Elon Musk has created a new artificial intelligence company called X.AI. It’s incorporated in Nevada.
Artificial Intelligence Stocks: OpenAI Emerges
In addition, 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, legal contracts, video gaming, customer support and digital art.
Generative AI models gobble up internet content in order to answer user questions or create new content. Some companies are raising issues over intellectual property. IAC founder Barry Diller says media companies should be alarmed and should fight back.
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. Anthropic has introduced a competitor to ChatGPT called “Claude.”
Artificial Intelligence Stocks Span Chips, Software
As software companies integrate generative AI tools into products, their customers will spend more on software, said a Goldman Sachs report. Generative AI will add an incremental $150 billion to the current global software market of $685 billion, the brokerage said.
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.
“Companies who don’t truly embrace generative will see their multiple compress by 50% over the next five years,” RBC Capital said in a recent note to clients. “We believe every technology company needs a strategy to truly embrace generative AI, otherwise they will be left behind by those that do.”
The report went on to say: “Not only will these companies see market share losses over time, but they will also see multiple compression as investors lose confidence in the ability of those companies to be future-proof.”
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.
Salesforce and Accenture (ACN) said they will team up to accelerate the deployment of generative AI across customer relationship management (CRM) technologies.
Brokerages Weigh In On Best AI Stocks
Bank of America, Morgan Stanley and Barclays tout chip maker Nvidia and Arista Networks (ANET) as top AI stocks. Internet data centers will need more computing power and network bandwidth to process AI workloads.
“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 Stanley 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, 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 from $3.3 billion in 2021 to just over $16 billion in 2026. Generative AI is expected to impact cybersecurity.
Artificial Intelligence ‘Table Stakes’
“We see (generative) AI becoming ‘table stakes’ for most software companies,” Evercore ISI analyst Mark Mahaney said in a report. “This generally favors the bigger companies with deeper pockets and access to more data.”
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.
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 over $1 billion.
Meanwhile, AI startup Adept recently raised $350 million, also at a valuation 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.
Federal Trade Commission chair Lina Khan on March 27 said her agency would protect AI startups from big-tech companies aiming to block new entrants. At a antitrust conference, Khan said the FTC would ensure that startups can compete in the AI industry. The Biden administration is mulling new legislation to regulate AI.
Nvidia, Chipmakers Key Players In AI Race
AI usage is exploding in facial and voice recognition technology, medical diagnostics, algorithmic trading, and automated customer service bots.
For many companies, gaining an edge with AI requires ongoing investments in compute, networking and data center infrastructure.
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 in AI development tools.
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
Tech giants are expanding AI initiatives.
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.
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.
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.
Digital media and marketing software maker Adobe at a conference strutted out cloud-based tools that will allow companies to better personalize content for customers on a large scale.
Bank of America upgraded Palantir (PLTR) to buy citing its AI prowess. Some analysts aren’t sure Palantir will capitalize on the AI opportunity.
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.
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. Only 12% are using AI tools at a maturity level that achieves a strong competitive advantage, according to Accenture.
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. 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.
IBM has bought at least five artificial intelligence companies since mid-2020. They include Databand.ai, Turbonomic, ReaQta, MyInvenio and WDG Automation.
Accenture also has been a big buyer of AI startups.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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