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)||$3,397.09||66.49|
|Nvidia (Nasdaq: NVDA)||$300.89||92.8|
|Alphabet (Nasdaq: GOOGL)||$2,936||28.27|
|Pinterest (NYSE: PINS)||$38.47||75.09|
|Adobe (Nasdaq: ADBE)||$570.53||56.59|
|IBM (NYSE: IBM)||$133.35||25.24|
|Micron Technology (Nasdaq: MU)||$94.13||14.57|
|Data is accurate as of Dec. 30, 2021.|
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 exceeded expectations in 2020 and the first quarter of 2021 — a milestone year for Amazon that saw founder and CEO Jeff Bezos step down. Earnings and revenue haven’t quite met analysts’ expectations lately, but some backsliding was to be expected as people return to in-store shopping, not to mention the labor shortages, increased employee costs and supply-chain issues CEO Andy Jassy expected to cost the company billions of dollars in the last quarter of 2021. Still, Amazon’s stock is up 6.74% since the beginning of the year. And 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 already boasts 10 million subscribers despite Nvidia doubling the subscription price.
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.
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.
Alphabet produced solid returns in 2021. 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. In the third quarter, which ended Sept. 30, 2021, Alphabet reported that revenue was up 41% compared to the previous year, and profits and diluted earnings per share were up significantly as well. As of Dec. 30, 2021, the stock was up over 63% for the year.
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. Still, given Google’s penchant for diversification, it’s a stock to watch.
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 444 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.
Pinterest had a tough 2021 as consumers’ spent more time away from their devices in favor of returning to some pre-pandemic activities. As of Dec. 30, 2021, the stock had dropped from $71.87 in January to $38.54. However, analysts say the company’s stock woes present an opportunity, with Investors Business Daily predicting that Pinterest’s current position means the company has morphed from growth to value, which it said is’t a bad thing. Zacks Equity Research is also optimistic, calling the stock a “buy.”
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 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.
IBM’s AI supercomputer Watson might not have changed the world in ways the company had hoped, but a recent 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 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 in an analysis that called the stock undervalued. In a year that could see investors looking toward “strong, steady growers,” as InvestorPlace predicted, IBM could be a natural choice.
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 ended 2021 on a positive note, trading near its April high of $95.30 after a rocky spring and summer that saw the prices dip to $67.50. Micron outperformed the S&P 500 for the year, Zacks Equity Research reported, adding that further 5G adoption beyond mobile would boost demand for memory and storage.
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.
Data was compiled on Dec. 30 and Dec. 31, 2021, and is subject to change.