Artificial intelligence (AI) is transforming everything from how we shop online to how doctors diagnose diseases. Global AI spending is projected to grow from $50 billion in 2020 to a staggering $500 billion by 2024. As AI seeps into nearly all aspects of the global economy, investors have a remarkable opportunity to profit from this megatrend that is still in its early innings.
What is AI?
AI refers to computer systems that can perform tasks normally requiring human intelligence, such as visual perception, speech recognition, and decision-making. Key focus areas within AI include:
- Machine Learning: Algorithms that can learn patterns from data and make predictions or decisions without explicit programming.
- Deep Learning: A subset of machine learning based on artificial neural networks modeled after the human brain.
- Natural Language Processing (NLP): The ability of machines to understand, interpret, and generate human languages.
Why Invest in AI?
There are several key reasons why AI presents a compelling investment thesis:
- Cost Savings: AI can automate tasks done by humans, reducing business costs. According to Gartner, AI could contribute $15.7 trillion to the global economy by 2030.
- Innovation Driver: AI can enable new products and services such as autonomous vehicles, personalized medicine, and intelligent virtual assistants.
- High Growth: The AI market is forecast to grow on average 42% annually from 2022-2027, much faster than the overall IT industry.
This article covers the major AI trends propelling market growth and profiles the most promising AI stocks spanning large tech companies, pure-play startups, chipmakers and more.
Demystifying AI Trends
Understanding the key AI trends reshaping various sectors provides crucial insight for investors seeking exposure to this high-growth theme.
Trend 1: Democratization of AI
- Previously complex AI algorithms now packaged into easy-to-use software.
- Enables non-technical personnel to leverage AI, expanding adoption.
- Examples include Google Cloud AI, Azure Machine Learning, OpenAI.
Trend 2: Generative AI
- AI models capable of generating new content from scratch like images, text, code etc.
- Includes tools like DALL-E 2, ChatGPT, and GitHub Copilot.
- Set to transform content creation, customer service and communication.
Trend 3: AI for Good
- Using AI to solve pressing global issues like hunger, disease and climate change.
- Applications span healthcare, education, sustainability, social services and more.
- Boosts funding and support for developing ethical AI systems.
Trend 4: Ethical AI
- Growing scrutiny on ensuring AI systems are fair, transparent and bias-free.
- Regulations like Europe’s AI Act propose restrictions on high-risk AI applications.
- Critical for establishing public trust in AI long-term.
Identifying Promising AI Stocks
Many public companies provide exposure to the AI boom, from pure-plays to Big Tech giants racing to dominate the space.
Pure-Play AI Stocks
| Company | Description |
|---|---|
| C3.ai ($AI) | Provides AI software to develop enterprise AI applications. |
| Palantir ($PLTR) | Develops AI data analytics platforms used by government agencies and corporations. |
| Appian ($APPN) | Creates low-code platforms incorporating AI capabilities like intelligent document processing. |
Pure-plays offer direct exposure to AI but can carry higher risk as emerging players.
Tech Giants Investing in AI
| Company | Key AI Offerings |
|---|---|
| Microsoft ($MSFT) | Azure AI services, machine learning tools (DALL-E), GitHub Copilot, OpenAI partnership |
| Google ($GOOGL) | TensorFlow, BERT NLP model, multiple research groups |
| Amazon ($AMZN) | AWS machine learning services, Alexa virtual assistant, Amazon SageMaker platform |
| Nvidia ($NVDA) | AI chips and platforms optimized for deep learning and computer vision |
Tech titans are pouring billions into AI and machine learning initiatives.
Semiconductor Companies Powering AI
Chips optimized for AI workloads provide the essential hardware foundation for AI software and platforms.
| Company | Description |
|---|---|
| AMD ($AMD) | Produces GPU, CPU and APU chips accelerating AI applications. |
| Qualcomm ($QCOM) | 5G chips optimizing on-device AI capabilities. |
| Broadcom ($AVGO) | Data center and networking chips speeding AI processing. |
AI chipmakers enjoying surging demand as AI moves increasingly to edge devices.
Emerging AI Startups
While risky, investing in private AI startups before IPO provides exposure to potential superstars. Select examples:
- Scale AI: Develops training data for AI models. Valued at $7.3 billion as of 2021.
- Recursion Pharmaceuticals: Leverages AI for drug discovery. Went public in 2021.
- Mythic AI: Makes AI accelerator chips for edge devices. Raised $70M from BlackRock, Hewlett Packard.
Venture capital funding for AI startups skyrocketed to $93.5 billion globally in 2021.
Evaluating Risk and Reward
While AI stocks carry enormous potential, investors must weigh risks and volatility too.
Market Analysis
- Total AI market expected to reach $1.4 trillion by 2029, compound annual growth rate (CAGR) of 38%.
- $136 billion in global AI investment in 2021 alone per IDC.
- Recent volatility due to macro conditions and tech selloff. Long term outlook remains positive.
Investment Strategies
AI stocks span various risk profiles. Options for investors include:
- Growth-oriented portfolio of mainly pure-play AI stocks.
- Mixture of established tech giants and younger AI pure-plays.
- Focus on names with AI exposure plus dividends like IBM, Intel.
- Spread capital across 8-10 stocks to mitigate concentration risk.
Risks and Challenges
While future seems bright, risks for AI stocks include:
- Extended selloffs in speculative tech names.
- Failure of startups with unproven business models.
- Intense competition between tech titans in cloud wars.
- Tighter regulation especially for applications like autonomous vehicles.
Future Outlook of AI Stocks
The companies leading development of artificial intelligence will dictate the technologies, platforms, and innovations that influence nearly all industries this decade. With AI in its early stages, forward-thinking investors have a prime opportunity to position themselves to profit from the rise of our increasingly intelligent machine counterparts.
Conclusion
AI is rapidly transitioning from buzzword hype into deployed business reality. From democratizing access to powerful predictive models to fueling breakthroughs in generative content creation, artificial intelligence will reshape the competitive landscape for companies across every economic sector. By evaluating the market landscape and selecting companies strategically investing in AI research and development, investors can profit from the AI revolution while also balancing risk exposure amidst current market volatility.
The leaders in constructively navigating the AI landscape will enjoy multi-year market leadership. The question that remains is which organizations you will bet on to set the pace. By taking an informed and balanced approach, your portfolio can thrive on the artificial intelligence wave rising rapidly on the horizon.
FAQs
What are the best AI stocks for 2023?
Some of the top AI stocks that are well-positioned for growth in 2023 include Microsoft (MSFT), Nvidia (NVDA), Google (GOOGL), IBM (IBM), and C3.ai (AI). These companies are making major investments in AI technology and have robust AI product offerings.
Should I invest in AI ETFs?
Investing in an AI or machine learning focused ETF can provide broad exposure to the artificial intelligence theme. Some AI ETF options include the Global X Robotics & Artificial Intelligence ETF (BOTZ) and the ARK Autonomous Technology & Robotics ETF (ARKQ). These funds hold a basket of stocks related to AI and robotics.
Are AI stocks overvalued right now?
Some high-flying AI stocks saw substantial run-ups in 2020 and 2021. However, many have come back down to earth in the recent tech sell-off. Stocks like C3.ai (AI), Palantir (PLTR), and Appian (APPN) now trade 50% or more below their 52-week highs. Investors can look for potential bargains.
What risks should I know before investing in AI stocks?
Key downside risks for AI stocks include high volatility, especially for less-proven names. Many AI startups have questionable paths to profitability. Regulatory hurdles around applications of AI also persist, especially in areas like autonomous vehicles. Competition between tech titans is also intense in the cloud wars.
Which AI applications seem most promising in the near-future?
Some of the ripest areas for AI adoption include predictive analytics, conversational AI and virtual assistants, intelligent process automation, computer vision, fraud detection, personalized recommendations, and manufacturing optimization. However, AI will increasingly transform virtually every industry.
