Best Artificial Intelligence Stocks: 7 Picks To Buy and Watch Now
Savvy investors will want to check out stocks that capitalize on artificial intelligence — using computers to simulate human thinking, reasoning and problem solving. Companies that use AI technology often do so by using software to process huge amounts of data. As the pandemic of 2020 forced lockdowns, many businesses took advantage of AI to interact with the public, as face-to-face contact was limited. That trend seems likely to continue. In a November market forecast, Gartner Inc. predicted the market for AI would grow 21.3%, to $62.5 billion, in 2022.
What Are Machine Learning and Artificial Intelligence?
Machine learning and artificial intelligence are often used interchangeably, but they’re not quite the same thing. AI is a much broader term. It refers to any computer application that mimics the human mind.
This means computers can do things like learn from examples, mistakes and experience. They can then combine these with other computer functions to do things like drive a car or choose your next song on Spotify. By evaluating how often you’ve played a certain song, liked it or looked up the artist after listening to it, AI can make recommendations about other songs you might enjoy.
Machine learning is a branch of AI. It refers to when a computer learns by itself as it digests more data and then reprograms itself to complete tasks with greater accuracy. Deep learning goes one step further: The computer can teach itself to perform a task with increasingly greater accuracy without any human intervention at all.
There are many applications of AI today. Siri and Amazon Alexa both use AI to respond to requests. When you shop online, chatbots use AI. It can also be used to evaluate the stock market by crunching huge amounts of data and looking for patterns. AI is everywhere these days, and it’s affecting industries across all spheres. When you shop for watches and your Facebook feed is suddenly crowded with ads for watches, that’s AI.
As AI becomes more and more sophisticated, its applications seem obvious. AI can crunch vast pools of data, make predictions, identify patterns and even make complex decisions and solve problems. AI is much less likely to make mistakes, and it never needs a vacation, gets sick or gets distracted like its human counterparts. And it will never demand a raise.
7 AI Stocks To Watch
|Company||Stock Price||P/E Ratio|
|Amazon (Nasdaq: AMZN)||$88.46||78.98|
|Nvidia (Nasdaq: NVDA)||$160.72||161.20|
|Alphabet (Nasdaq: GOOGL)||$94.94||19.38|
|Pinterest (NYSE: PINS)||$22.68||283.50|
|Adobe (Nasdaq: ADBE)||$326.68||30.82|
|IBM (NYSE: IBM)||$147.27||24.19|
|Micron Technology (Nasdaq: MU)||$53.82||6.94|
|Data is accurate as of Dec. 7, 2022.|
It will come as no surprise that the company that likes to dip its fingers into every pie is finding many uses for AI technology. Amazon already uses AI for myriad tasks such as Amazon Alexa, cashier-less grocery stores and improved customer recommendations. The AI recommendation engine is responsible for 35% of Amazon’s total sales, according to a 2020 analysis by Apiumhub.
In 2020, Amazon Web Services teamed up with Intel to provide hardware for many of its cloud computing services. Amazon also uses AI to make its delivery system more efficient.
Amazon stock is down over 46% this year and trading at pre-pandemic prices after meteoric gains during and after shutdowns. Some analysts think this period of regrouping and reinvestment presents an excellent buying opportunity. If history has shown anything, it’s never to count Amazon out.
Nvidia is the leading provider of AI chips used for drug development, self-driving vehicles and cloud computing. It also makes graphics processing units, and the future of computer gaming in the cloud combines both of these elements. Cloud gaming is when you can stream a game from any device that has a display.
In 2019, Nvidia launched GeForce Now, a cloud gaming service that boasted over 20 million subscribers as of August 2022.
Nvidia is also investing in AI with Amazon, but the bedrock of its business is chip technology, which remains in high demand amid an ongoing global shortage that might not fully ease for another year or more. Regardless, Nvidia is a major player in AI and is definitely one to watch, although you might have to wait for significant gains on the money you invest now.
Alphabet is a holding company with a long list of subsidiaries and standalone companies under its umbrella — Google being the largest. Its operating segments include Google Services, Google Cloud and Other Bets.
Google uses AI technology for digital advertising and the Alexa rival Google Assistant, among other ventures. Alphabet is heavily invested in AI research and development with other companies, such as London-based DeepMind and the self-driving car company Waymo, which began as a Google project. It’s currently in talks to invest $200 million in an AI startup called Cohere Inc. that also talked to Nvidia, according to The Wall Street Journal.
Alphabet’s stock, like the stock of tech companies overall, has taken a serious hit in 2022 and was down almost 35% year to date on Dec. 7. However, many analysts see this as a buying opportunity, calling GOOGL a “strong buy.” Seeking Alpha predicts that $80 could have been the low for the stock and forecasts a strong advance in the longer term.
If you’re familiar with the social media website Pinterest, you know it has an uncanny ability to predict things you might be interested in, or “pins.” It uses AI technology to do this, and its 433 million active users per month as of Q1 2022 seem happy with the visual data it provides.
Pins are concepts or ideas that Pinterest finds through AI, and users post them to pinboards, which they can then share with other users. This may sound frivolous, but a huge number of people use Pinterest, and the company became profitable in 2021. Although it has lost users since then, as consumers returned to pre-pandemic activities, its technology remains a powerful force “at the intersection of search, social media and commerce, with significant opportunity for growth and value creation,” said Marc Steinberg, a senior portfolio manager at Elliott Investment Management, who recently joined Pinterest’s board after the companies entered into a long-term cooperation agreement.
Despite Pinterest’s exorbitant P/E ratio of 283.50, most recent analyst reports are bullish on the stock.
Adobe Sensei is the company’s AI and machine learning technology. Layered on top of the insights gleaned from the Adobe Experience Cloud, Sensei can analyze data, predict the best ways to engage with customers and then analyze customer interactions afterward.
Adobe has integrated Sensei into its Creative Cloud products to help users edit photos and videos and create visual effects, graphic designs and social media content. Although the Creative Cloud suite isn’t the only creative software out there, and it’s certainly not the least expensive, the breadth and depth of its capabilities are unrivaled.
Adobe has a reasonable P/E ratio. A P/E ratio shows what the market is willing to pay for a stock based on past or present earnings. A high P/E ratio could indicate a stock is overvalued, while a lower P/E means the stock could be undervalued. It’s not foolproof, but choosing stocks with a relatively low P/E ratio is the basis of value investing — Warren Buffett is a fan of the strategy.
IBM’s AI supercomputer Watson might not have changed the world in ways the company had hoped, but an analysis by market research company Fact.MR showed a 27% increase in global demand in 2021 and indicated that Watson language services would dominate the landscape over the coming years.
With its own blockchain platform and capabilities focusing on natural language processing, hypothesis generation and evaluation and dynamic learning, “Watson helps organizations predict future outcomes, automate complex processes, and optimize employees’ time,” according to IBM’s website. End users have deployed IBM AI in industries as diverse as healthcare, retail and finance, making it a market share leader among AI giants.
One thing that sets IBM apart from competitors is that it’s a hybrid cloud solution that links multiple public clouds, reducing companies’ vulnerability to outages like the one that hit Amazon AWS, InvestorPlace reported.
Some analysts believe the stock is overvalued, and indeed, it’s one of the few tech stocks trading higher at the end of 2022 than at the start. But the company is a stalwart blue chip with a P/E ratio that’s in line with the industry average, according to Zacks, and it still has a consensus “buy” rating.
7. Micron Technology
Micron makes the world’s broadest portfolio of memory and storage technologies, including DRAM, RAND and NOR. These memory and storage solutions accelerate information into intelligence.
Micron made a splash in the AI market with its 2019 purchase of the artificial intelligence hardware and software startup known as Fwdnxt — pronounced “forward next.” The acquisition opened the door for Micron to integrate computers, memory and software into a powerful AI development platform able to supply the building blocks needed to explore memory storage and AI solutions.
Micron stock is down over 40% three weeks before the year’s end. With a low P/E ratio of 6.94, it could be a good pick for value investors.
AI technology is here to stay, so companies that utilize AI and machine learning should be well positioned for the future. Companies that either develop AI or use it to improve customer experience are ones you should consider adding to help diversify your portfolio.
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Daria Uhlig contributed to the reporting for this article.
Data was compiled on Dec. 7, 2022, and is subject to change.
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- CNBC. 2021. "Amazon badly misses on earnings and revenue, gives disappointing fourth-quarter guidance."
- Nvidia. 2021. "GeForce NOW Gets New Priority Memberships and More."
- Investor's Business Daily. 2021. "Is Nvidia Stock A Buy? Chip Giant Offers New Buy Point After UBS Calls It Top Pick For 2022."
- Alphabet. 2021. "Alphabet Announces Third Quarter 2021 Results."
- Zacks. 2021. "Pinterest (PINS) Dips More Than Broader Markets: What You Should Know."
- Bain & Company. 2022. "When Will the Chip Shortage End?"
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- PC Mag. 2022. "Nvidia's GeForce Now Game-Streaming Service Tops 20 Million Users."
- PC Mag. 2022. "Nvidia Gaming Revenue Drops 51% on Weak Demand, Crypto-Mining Drying Up."
- Yahoo Finance. 2022. "IBM (IBM) Stock Moves -0.85%: What You Should Know."