Author: REINHARDT KRAUSE
Source
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.
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In general, look for AI stocks that use artificial intelligence technology to improve products or gain a strategic edge. Investors should be cautious of any buys amid the bear market and Fed rate hikes.
Some companies have been aggressive making AI acquisitions. IBM (IBM) has bought at least five AI companies since mid-2020. They include Databand.ai, Turbonomic, ReaQta, MyInvenio and WDG Automation.
Artificial Intelligence Race
Electric car maker Tesla (TSLA) hosted its annual AI day on Sept. 30. Tesla rolled out a prototype of its Optimus humanoid robot. CEO Elon Musk said the target price for the robot was under $20,000. TSLA stock holds a Relative Strength Rating of only 34 out off a best-possible 99.
With artificial intelligence, the cybersecurity firms aim to spot and block malicious activity on computer networks better than existing technologies can. Cybersecurity firm Palo Alto Networks (PANW) aims to deploy AI across its cloud platform.
“We need to get smarter about applying AI within our own company, within all industry,” Palo Alto Chief Executive Nikesh Arora said at Goldman Sachs Communacopia conference on Sept. 13. “So, our biggest challenge as a company right now is to understand our data well enough that we can use the data, create predictive capability within our products so our customers have a much more easier life than expecting humans to understand everything and take really complicated products and deploy them effectively.”
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 AI 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 (MSFT) and Google-parent Alphabet (GOOGL).
Tech Giants Among Best AI Stocks
The 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, AMZN stock 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, GOOGL stock uses AI tools in digital advertising.
Meanwhile, Salesforce (CRM) rolled out new AI-based tools at its Dreamforce customer conference in September.
“We are encouraged by the launch of AI platform, Genie, which is built on a revamped Hyperforce platform with new data lake and data ingest capabilities, in addition to interoperability with Snowflake (SNOW) and the Amazon’s SageMaker machine learning library,” said Bank of America analyst Brad Sills in a report. “Genie has potential to accelerate AI driven workflow automation across multiple clouds for pulling through multi-cloud deals.”
All AI software needs computing power to find patterns and make inferences from large quantities of data. The race is on to build AI chips for data centers, self-driving cars, robotics, smartphones, drones and other devices.
At its annual spring conference, chip maker Nvidia (NVDA) touted its software-based development tools to build artificial intelligence applications.
“Nvidia is building an AI ecosystem that is emerging as a de-facto standard,” Jefferies analyst Mark Lipacis said in a note. Nvidia rival Intel (INTC), meanwhile, aims to catch up in AI development tools.
AI Stocks: Software Market Key
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 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.
Artificial Intelligence Stocks: IBM Sells Watson Health
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. Bengio will lead a new AI research unit at Apple under John Giannandrea. He joined Apple in 2018 after spending about eight years at Google.
AI Stocks Span Chips, Software, Internet Giants
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.
The worldwide AI semiconductor market will grow to more than $70 billion by 2025, up from $23 billion in 2020, forecasts research firm Gartner.
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.”
Software Companies Integrate AI Tools
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 Susquehana Financial Group report.
Tata Consultancy Services will partner with Walton Centre NHS Foundation Trust to build digital solutions for patient care. Tata Consultancy will develop an AI-based chatbot that will help reduce the three-month waiting time for patients to see a specialist consultant.
In addition, software companies are among artificial intelligence stocks to watch. Many software-as-a-service companies use AI tools.
In the auto insurance and collision repair industries, CCC Intelligent Solutions (CCCS) aims to get an edge with 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.
Slew Of Artificial Intelligence Stocks
The initial public offering of C3.ai (AI) in late 2020 raised $651 million. But C3.ai has been a laggard since the IPO.
ZoomInfo Technologies (ZI) aims to get an edge in business-to-business marketing with artificial intelligence.
Zendesk (ZEN) recently acquired Cleverly to advance customer service.
Upstart Holdings (UPST) leverages artificial intelligence tools in evaluating personal and auto loan applications for banks. Shares in Upstart plunged in May on weak guidance.
San Mateo, Calif.-based Coupa (COUP) acquired Llamasoft, a provider of AI-powered supply chain software, for about $1.5 billion. Llamasoft’s customers include Boeing (BA) and Home Depot (HD).
Enterprise software maker ServiceNow has been making AI acquisitions. Under new Chief Executive Bill McDermott, ServiceNow in early 2020 acquired two AI companies, Passage AI and Loom Systems.
DocuSign (DOCU) in 2020 agreed to buy Seal Software for $188 million. The startup uses artificial intelligence for contract analytics.
Artificial Intelligence Stocks Span Industries
For some companies, the U.S. government is a key customer. Also in 2021, the U.S. commerce department formed the National Artificial Intelligence Advisory Committee. Also, the Department of Defense is accelerating use of AI.
In addition, AI competition is fierce in many industries. They include financial services, pharmaceuticals, health care and cybersecurity. Worldwide spending on AI software for retail uses will boom to $9.8 billion in 2025, up from $1.3 billion in 2019, forecasts Omdia.
Meanwhile, Netflix (NFLX) utilizes AI to personalize its internet TV content for subscribers.
There’s plenty AI competition in enterprise software.
Meanwhile, Salesforce’s Einstein tools improve sales forecasts. The AI software uses a company’s historical lead and account data to predict which deals are more likely to close. Salesforce has expanded Einstein tools into financial services and other markets.
On its first-quarter earnings call, Salesforce said its customers were generating more than 164 billion Einstein predictions per day, up from 100 billion a year earlier. But Salesforce has yet to disclose financial metrics on how much revenue the Einstein AI platform generates, directly or indirectly.
IBD 50: Companies Adopt AI
In e-commerce, Adobe’s AI tools personalize website content to spotlight products or services that online shoppers are most likely to buy. Also, Adobe also belongs to the IBD Leaderboard.
Further, the IBD 50 roster of growth stocks has featured artificial intelligence stocks in online dating, digital advertising and business communications.
In addition, other companies using AI include:
Square-parent Block (SQ): Square Capital, part of digital payment processor Block, provides loans to merchants. Square Capital uses an AI-driven credit assessment platform in granting new loans.
Match Group (MTCH): Controlled by IAC (IAC), Match is using artificial intelligence to improve its Tinder mobile dating app. Tinder’s new “Super Likable” feature uses machine learning.
Trade Desk (TTD): The digital advertising firm provides automated tools to help customers buy online ads and optimize return on spending. Trade Desk’s AI tools identify the best websites to buy ads on.
Digital Payment Firms Among AI Stocks
Here are other AI stocks to consider:
Qualcomm (QCOM) plans to sell an AI-ready modem for 5G wireless networks.
Five9 (FIVN): A provider of cloud-based contact center software, Five9 is developing machine learning algorithms that help companies automate customer support. Five9 is partnering with Google on AI contact center software.
Visa (V) and Mastercard (MA): The credit card networks use AI tools to detect financial crimes such as fraud and money laundering. In addition, big banks use AI in chat bots that provide online customer services.
Omdia forecasts that AI chipsets and accelerators for “edge” applications will grow to $51.9 billion by 2025, up from $7.7 billion in 2019. Those apps include mobile phones, automotive, drones, security cameras, robots and smart speakers.
In addition, memory chip makers such as Micron Technology (MU) should get a boost, analysts say. The reason is intelligent devices will need more more memory to process AI apps.
Applied Materials (AMAT) in March 2021 rolled out a new optical inspection system, called ExtractAI, to detect chip defects by using AI software.
U.S., China Battle In Artificial Intelligence
Semiconductor manufacturing equipment makers such as Applied Materials expect AI to boost demand for high-end gear. Test equipment makers such as Teradyne (TER) could get a boost from AI chips as well.
Also, the U.S. is racing versus China and other countries to develop artificial intelligence technology. In early 2021, the U.S. government placed restrictions on the export of AI software.
Further, the use of artificial intelligence in facial recognition and some other areas has become controversial. Also, Alphabet CEO Sundar Pichai has called for regulation of artificial intelligence.
In addition, investors interested in AI technology also could consider the TCW Artificial Intelligence Equity Fund (TGFTX). It’s primarily for institutions but is open to retail investors.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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