6 Artificial Intelligence Stocks To Watch: What You Need To Know Before Investing

NVIDIA
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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.

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. It 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

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.

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Artificial Intelligence

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. It will never demand a raise.

6 AI Stocks To Watch

Company Stock Price P/E Ratio
Amazon (Nasdaq: AMZN) $3,355.73 58.48
Nvidia (Nasdaq: NVDA) $211.13 Forward P/E: 45.47
Alphabet (Nasdaq: GOOGL) $2,774.39 30.08
Pinterest (NYSE: PINS) $52.51 Forward P/E: 37.83
Adobe (Nasdaq: ADBE) $641.29 Forward P/E: 45.67
Micron Technology (Nasdaq: MU) $72.37 19.98
Data is accurate as of Sept. 20, 2021.

1. Amazon

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.

Amazon Web Services recently teamed up with Intel to provide hardware for AI training. Amazon also uses AI to make its delivery system more efficient.

Jeff Bezos stepped down as CEO of Amazon in July, but the stock exceeded expectations in 2020 and the first quarter of 2021. Amazon’s overall growth slowed during the second quarter, as consumers returned to some of their pre-pandemic shopping habits. However, AWS saw accelerated revenue growth of 37% vs. 32% in the first quarter amid plans to build data centers in Israel and the United Arab Emirates, CNBC reported. Granted, Amazon has lofty goals for this year, and some say the stock is overvalued, but if history has shown anything, it’s never to count Amazon out.

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2. Nvidia

Nvidia is the leading provider of AI chips used for 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 already boasts 10 million subscribers, a substantial increase from the 1 million subscribers it had last year.

Nvidia is also investing in AI with Amazon, and it’s getting into cryptocurrency mining. But the bedrock of its business is chip technology, and these are in such demand that there’s currently a global shortage. Sales are rising after taking a dip, so Nvidia is definitely one to watch.

3. Alphabet

Google is not only synonymous with research, but Alphabet, its parent company, has eight other products with more than 1 billion users each. Google Cloud is now a stand-alone company with its own segment on the business report. Google uses AI technology for digital advertising and the Alexa rival Google Assistant, and it’s looking into using AI to power self-driving cars.

While the first quarter of 2020 saw only a slight increase in share prices, the pandemic could be partly to blame. Alphabet’s first and second quarter 2021 earnings handily beat revenue expectations, and Google Cloud revenue reached $4.63 billion, surpassing second-quarter estimates by $230 million.

Alphabet is the subject of a huge antitrust lawsuit by the Department of Justice. The DOJ claims Alphabet paid bribes to Apple to keep Google as the default search engine on Apple devices. Since Google is also the leading search engine on Android devices, this would make Google almost a monopoly and give the company an unfair advantage.

Google acquired Fitbit in 2019, after which the DOJ stated its investigation into Google was ongoing. Still, given Google’s penchant for diversification, it’s a stock to watch.

4. Pinterest

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 400 million active users per month 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 — in 2020, users saved more than 300 billion pins on 6 billion boards.

In March of this year, Pinterest announced the expansion of options for its skin tone range feature to include tones from an additional 13 countries. AI will allow users to refine their beauty-related searches based on their skin tone.

Pinterest grew its fourth-quarter 2020 revenue by a whopping 76%, to $706 million. Predictions that growth would continue over 2021 are bearing out. Revenue grew by 78% year over year during the first quarter, and the company reported an astonishing 125% year-over-year growth during the second quarter, beating its own estimates by 20%. The stock shows no sign of slowing, which means you can still take advantage of its potential.

5. Adobe

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.

AI can help users edit photos and videos and create visual effects, graphic designs and social media content. Sensei makes video editing faster in Adobe Premiere Pro. And Adobe Analytics combines data from various platforms to analyze customer data and make predictions about future behavior.

Adobe has a relatively low P/E evaluation. 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.

6. 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.

Of note is that in 2019, the company acquired the artificial intelligence hardware and software startup known as Fwdnxt — pronounced “forward next.” This could integrate computers, memory and software into a powerful AI development platform. This platform will supply the building blocks needed to explore memory storage and AI solutions.

Micron is down about 20% from its recent high early this year, which analysts say presents a good buying opportunity even if memory prices slip.

Advice

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.

Daria Uhlig contributed to the reporting for this article.

Stock prices and P/E ratios are accurate as of Sept. 20, 2021. All other data was compiled on Sept. 11, 2021, and is subject to change.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

About the Author

Gail Kellner is a freelance writer specializing in personal finance and investing. She has written for Bankrate, Retireable, MoneyGeek, and a host of other small business websites. She is located on the east coast, in Massachusetts where she lives with her sons and her husband.

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