Artificial intelligence (AI) is an evolving field that is raising a lot of excitement and buzz about how it can completely change certain industries. At its best, AI has the ability to improve medical diagnoses, accelerate the discovery of national security concerns, and even aid in criminal solving. There are, nevertheless legitimate concerns, particularly in the fields of education, intellectual property, and privacy.
If you’re an investor looking to capitalize on the expanding relevance of AI, you’ve come to the right spot. According to PwC’s (Pricewaterhouse Coopers) research from 2022, AI might contribute a staggering $15.7 trillion to the global economy by 2030. This huge sum has certainly aroused investors’ interest.
As investors shift their focus to AI stocks, several companies are suddenly marketing their AI product ambitions. But here’s the catch: finding trustworthy AI stocks that are already generating income from generative AI, such as Microsoft (MSFT) and Nvidia (NVDA), can be difficult. Even for industry titans like Alphabet (GOOGL), Google’s parent firm, the rise of generative AI brings both risks and potential.
So, if you’re looking for the best AI stocks, we’ve done some research and compiled a list of companies that are using artificial intelligence to improve their products and gain a competitive edge.
What Exactly Are AI Stocks?
AI stocks are shares in companies that use artificial intelligence. These companies may be technological giants like Microsoft and Apple working on AI technology, or they could focus on creating AI-related technologies like microchips, as Nvidia and Micron Technology have done. Some businesses, such as c3.ai, are solely focused on AI.
Points to Consider Before Investing in AI Stocks
Before putting money into AI stocks, keep the following points in mind:
- Risks: Every investment carries some level of risk, and AI stocks are no different. The hazards differ based on the industry in which an AI company operates. In 2016, for example, Google-owned DeepMind was embroiled in a controversy over data sharing with the UK’s National Health Service. The greater the importance of the problems AI seeks to tackle, the greater the investment risk. Companies that focus on certain areas may provide more consistent results.
- Select Your Industry: AI businesses operate in a variety of industries, ranging from healthcare to automotive and manufacturing. It is critical to select an industry that interests you. For example, AI in healthcare, including disease diagnosis and drug research, has a bright future.
- Data is the fuel: AI is dependent on data, and good data is essential. Companies with unique data have a competitive advantage. With their massive databases, Google and Amazon can build formidable AI systems. Google just introduced “Bard,” a generative AI chatbot, while Amazon’s AWS is developing generative AI solutions to improve its business tools.
Overall, AI stocks represent companies active in artificial intelligence, and when it comes to investing in AI stocks, understand the risks involved, focus on certain areas you’re interested in and give importance to data for AI success. Also, if you actively manage your investments, use trading tools to stay informed.
Best AI Stocks for 2024
These are the 10 best AI stocks for 2024 that have the potential to change your investing fortune. They have the strongest year-to-date returns among AI stocks, they are included in a major AI ETF portfolio, they are covered by at least one Wall Street analyst, and they have a market capitalization higher than $300 million.
Microsoft
Microsoft Corporation (MSFT) is a major software company. In 2019, it partnered with OpenAI, committing $1 billion to make Microsoft Azure OpenAI’s exclusive cloud provider. This collaboration was extended in January 2023 with a multiyear, multibillion-dollar investment.
Microsoft has also made some exciting moves in the AI field. In February, it integrated ChatGPT into its Bing search engine, and in September, it announced the integration of its AI assistants into a unified experience known as Microsoft Copilot.
Analysts also believe that Microsoft’s AI services are a big growth driver for its Azure cloud services company. Bank of America recommends purchasing MSFT shares, with a $415 price target. MSFT stock closed at $352.80 on November 3.
Nvidia
Nvidia isn’t only about graphics cards; it also makes microchips for self-driving cars and AI applications. CEO Jensen Huang is determined to make Nvidia a leader in bringing AI to every industry.
NVDA has been the best-performing AI stock in the last year. While earnings growth has been mild over the last five years, at 5%, analysts forecast significantly better earnings growth over the next five years.
Nvidia has a “B” financial health rating by Morningstar. They anticipate to increase EPS (profits per share) by 34% next year, with a big increase in earnings this year as well. Despite the fact that the current projected price-earnings ratio is over 40 (more than twice that of the S&P 500’s P/E of roughly 20), Nvidia’s impressive growth makes this ratio appear more acceptable.
Nvidia buys back its shares as an added bonus, which benefits its stock performance in the long run. They’re actively investing in their own success, with a repurchase yield of 0.8%, which bodes well for investors.
C3.ai
It offers software that allows customers to build large-scale AI applications. It is one of the few stocks devoted completely to the development of AI initiatives.
Even though it started trading in 2020, the company has seen a strong rally in its stock over the past year, making it a leader in the industry for projected growth. Analysts predict significant average annual EPS increase over the next five years.
While C3.ai has yet to post a successful year, it is likely to do so in 2025, with a projected 12 cents per share. Despite the current rise, the stock remains substantially lower than its high from 2020. With a financial health rating of “C” from Morningstar, it’s crucial to know that this stock is still speculative, given its short history and inadequate measures for projecting future performance.
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Alphabet Inc.
The parent company of Google and YouTube, primarily relies on AI and automation throughout its operations. These technologies assist with everything from ad pricing to email spam filtering. Google unveiled Bard, an AI chatbot, in March and later integrated it into applications such as YouTube, Google Drive, and Google Flights.
Alphabet released new AI-powered search functionality for the healthcare industry in October. According to analysts, Google’s advertising business is gaining traction as a result of its AI technology. GOOGLE stock is rated a “buy” by Bank of America, with a price objective of $149. On November 3, GOOGL stock closed at $129.10.
Meta Platforms Inc.
(META) is one of the large st social media and online advertising companies that owns Facebook, Instagram, and other platforms. According to The Wall Street Journal, Meta is working on a powerful new AI system that will compete with the most advanced OpenAI model.
Meta launched generative AI tools for advertisers in October, allowing companies to produce image backgrounds, alternative variations of written text, and other material. According to analysts, Meta’s Advantage+ shopping ads on Facebook are gaining traction with marketers, with plans to incorporate more AI capabilities in the future.
META stock is rated a “buy” by Bank of America, with a $384 price target. META shares closed at $314.60 on November 3.
KLA Corporation (KLAC)
It focuses on developing semiconductor monitoring and diagnostic systems, which are critical for powering AI projects in computers.
In 2023, the stock had considerable rise, approaching its all-time high. While its earnings and sales have been consistently expanding in recent years, this growth is expected to decrease over the next five years, with earnings expected to fall 15.5% next year.
As a result, the stock is thought to be more cheaply priced than the others on the list. KLA Corporation has been repurchasing its shares aggressively, with a repurchase yield of 5.1%. It also pays a 1.1% dividend, which has been steadily increasing year after year. With a financial health rating of “B” from Morningstar, it appears to be in good financial shape.
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Arista Networks Inc. (ANET)
It provides cloud networking solutions to ISPs, cloud service providers, and enterprise data centers. Its high-performance networking solutions and data center switches are critical for supporting AI workloads’ high processing demands.
Arista announced an AI-powered network identification service for IT operations and enterprise security in the second quarter. An analyst believes that the company’s increased spending on AI will offset any declines in its Cloud Titan sector. Furthermore, improved sales mix and supply chain management are increasing Arista’s margins.
ANET stock is rated a “buy” by Bank of America, with a price objective of $225. ANET shares closed at $212.49 on November 3.
UiPath Inc. (PATH)
It builds software as well that help businesses in streamlining tasks ranging from simple to complicated, saving both time and money.
PATH’s performance over the last year has been less outstanding when compared to other stocks on the list and the S&P 500. As a relatively new public firm, it has yet to post a profitable year. Analysts think it will break even in 2024, with a profit of 34 cents per share.
Despite its development potential, PATH is now trading below its high in 2021. PATH has a “C” financial health rating from Morningstar, thus investing in it is more speculative. Although it lacks a current price-to-earnings (P/E) ratio due to its lack of profitability, the forward P/E is comparable to other high-growth prospective AI stocks on this list.
Palo Alto Networks Inc. (PANW)
It is well positioned as the demand for cybersecurity grows in tandem with technological improvements. It focuses on network and cloud security, which is crucial for many AI initiatives that rely on comparable networks and clouds.
The company did extraordinarily well in 2023, reaching an all-time high and obtaining a “B” financial rating from Morningstar.
While the company has yet to report a successful year, experts predict it will earn $4.27 per share in 2023, with a 17.3% increase in EPS the following year. Expectations for even higher average growth in the next years are likewise promising.
Given its transition to profitability, the present price-to-earnings (P/E) ratio is high, however the forward P/E is more fair, if still relatively dear. Investors are bullish, expecting earnings to reach $10 per share in the future years, resulting in a price-to-earnings ratio of 25:1.
PANW also has a consistent history of repurchasing shares, with a current repurchase yield of 0.8%.
SAP SE (SAP)
It dominates the global enterprise resource planning software solutions market. Their artificial intelligence-powered business solutions assist firms in streamlining operations in finance, supply chains, procurement, and sales and marketing.
SAP announced intentions to hire approximately 200 AI engineers in order to develop SAP Labs Singapore into a hub for AI technologies. According to analyst Frederic Boulan, monetizing generative AI might result in considerable revenue and earnings growth in the medium term.
SAP has already implemented premium AI improvements on its RISE cloud-based platform, cementing its market leadership. SAP stock is rated a “buy” by Bank of America, with a price target of $163. SAP stock closed at $138.98 on November 3.
Conclusion
In the fast-changing world of AI, it’s obvious that investors will be looking to capitalize on this flourishing sector which has a variety of possibilities. As established giants such as Microsoft and NVIDIA provide stability, on the other hand small but purely AI companies are also promising lucrative profit margins. As the AI landscape evolves, the ability of these top organizations to innovate and translate their AI activities into sustainable and profitable operations will be critical to their success. With large technology companies already reaping the benefits, the future of AI stocks remains bright, providing investors with a dynamic and growing landscape for prospective growth and returns.
Note: This is only for educational purposes, this is not investing advice.
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