(MENAFN- ValueWalk) There has been no bigger catalyst for growth in the past few years than artificial intelligence, or AI. The phenomenon has cut across industries as often the mere mention that a company is ramping up its investment in AI can send its stock soaring.
As NVIDIA CEO Jensen Huang said on the company's fourth-quarter earnings call, AI is a revolution that is ushering in a whole new way of computing.
“My expectation is that what is being experienced here in the United States, in the West, will surely be replicated around the world, and these AI-generation factories are going to be in every industry, every company, every region ... [T]his last year, we've seen a generative AI really becoming a whole new application space, a whole new way of doing computing, a whole new industry is being formed and that's driving our growth,” Huang said .
Thus, when it comes to picking the top AI stocks, it is not easy because of the ubiquity of the technology. However, there are certain stocks that have AI at the center of their business and should thrive for years to come, as the AI revolution is still in its early days.
Here are the 10 best AI stocks with long-term upside.
Photo: Depositphotos Table of Contents Show
1 . NVIDIA: Average annualized 5-year return of 93.1%
2. Microsoft: Average annualized 5-year return of 27.5%
3. Broadcom: Average annualized 5-year return of 35.0%
4. Meta Platforms: Average annualized 5-year return of 20.5%
5. Alphabet: Average annualized 5-year return of 25.2%
6. Arm Holdings: Up 98% since Sept. 2023 IPO
7. Micron Technology: Average annualized 5-year return of 20.5%
8. Symbotic: Average annualized 3-year return of 44.8%
9. AMD: Average annualized 5-year return of 42.3%
10. IBM: Average annualized 5-year return 5.5%
What is AI?
The risks of investing in AI stocks
The best of what's around
1 . NVIDIA: Average annualized 5-year return of 93.1% NVIDIA (NASDAQ:NVDA) has become the poster child for AI stocks based on its meteoric gains. This semiconductor giant makes AI-enabled graphics processing units (GPUs) for computers, cars, gaming systems and other devices.
However, it generates most of its revenue from data centers, where huge volumes of data are processed. NVIDIA controls about 98% of the GPU market at data centers, where its roster of clients includes Microsoft, Amazon, Alphabet, Meta Platforms, and other corporations and institutions.
NVIDIA's returns have been phenomenal. Over the past 12 months, the stock has gained 230%, and in the past five years, it has an average annualized return of 93.4%.
Photo: Depositphotos2.
Microsoft: Average annualized 5-year return of 27.5% Is Microsoft (NASDAQ:MSFT) an AI stock? The answer is yes, at least from this vantage point.
Microsoft has a minority“economic interest” in one of the biggest AI companies in the world, OpenAI, which created ChatGPT. Microsoft tried to buy OpenAI outright last year but settled for a partnership establishing its Azure cloud-computing platform as the exclusive cloud partner for OpenAI.
Microsoft also has a non-voting seat on OpenAI's board. Through this partnership, Microsoft has become a leader in this space, and AI has driven its growth and market share gains in cloud computing.
Microsoft has a one-year return of 34% and a five-year annualized return of 27.5%.
Photo: Depositphotos3
. Broadcom: Average annualized 5-year return of 35.0% Broadcom (NASDAQ:AVGO) is another semiconductor stock fueled by its AI chips. The company makes chips mainly for wireless connectivity, so it is poised to benefit from the 5G wireless boom.
Broadcom's chips power 5G networks and its infrastructure. On the other hand, NVIDIA focuses on the generative-AI GPUs that handle complex, AI-driven tasks on the network that Broadcom's chips facilitate.
Thus, these two chipmakers are not really competitors, although both will stand to benefit from the AI boom as leaders in their respective realms. Additionally, Broadcom bought visualization-software producer VMWare last year, which should further diversify its revenue streams.
Broadcom has a one-year return of 105.9% and a five-year annualized return of 39.0%.
Photo: Depositphotos 4. Meta Platforms: Average annualized 5-year return of 20.5% Meta Platforms (NASDAQ:META) has fully focused its future on AI technology. For fiscal 2024, the company plans to spend $35 billion to $40 billion on capital expenses, with most of it going to AI.
In fact, that's just the beginning as CEO Mark Zuckerberg said in April,“We expect capex will continue to increase next year as we invest aggressively to support our ambitious AI research and product-development efforts.”
In other words, he's talking about investing in AI across the company's business - from advertising to social media to the Metaverse. Zuckerberg wants Meta to“be the leading AI company in the world.
Meta Platforms has posted a one-year return of 89.5% and a five-year annualized return of 20.5%.
Photo: Depositphotos 5. Alphabet: Average annualized 5-year return of 25.2% Like Meta, Alphabet (NASDAQ:GOOG) is also embracing AI. It had fallen behind its competitors in the AI arms race, but it is making up for that with major investments in it. 3
Most notably, Alphabet rolled out its Gemini AI platform last year. Gemini is set to rival the offerings from Microsoft and OpenAI with AI functionality that will be used across Alphabet's cloud, Google, YouTube, Gmail and other businesses.
In Q1, Google Cloud saw a 28% increase in revenue, and Gemini AI has been a key driver. It also doubled its capital expenditures in Q1 to $12 billion to support its AI products and services and expects to maintain that level of spending in fiscal 24.
Alphabet stock has a one-year return of 40% and a five-year average annualized return of 25.2%.
Photo: Depositphotos 6. Arm Holdings: Up 98% since Sept. 2023 IPO Arm Holdings (NASDAQ:ARM) is a U.K.-based semiconductor company that only started trading on the Nasdaq in September. However, it has made quite a splash since then, rising about 98% to $111 per share.
Arm operates in a unique niche within the semiconductor space as it provides the architecture, or instruction manual, for chips that are then licensed to other semiconductor companies for a royalty fee. The partners then customize and make their own chips based on their needs.
The chips Arm designs are also power-efficient, which is a big advantage over those from its competitors. The company's mission is to reduce the“insatiable” energy needs of AI, making its chips much in demand.
Photo: Depositphotos 7. Micron Technology: Average annualized 5-year return of 20.5% The many semiconductor stocks on this list occupy different parts of the industry, just as Micron Technology (NASDAQ:MU) does.
Micron specializes in chips for memory and data-storage chips in computers, smartphones, and servers at data centers. The company has seen a huge jump in revenue from its high-bandwidth-memory (HBM) chips, which are used in data centers for AI-related storage needs.
On the most recent earnings call, Micron CEO Sanjay Mehrotra said,“We are in the very early innings of a multi-year growth phase driven by AI as this disruptive technology will transform every aspect of business and society.”
Micron stock has returned 87.9% over the past year and has a five-year average annualized return of 29.1%.
Photo: Depositphotos 8. Symbotic: Average annualized 3-year return of 44.8% Symbotic (NASDAQ:SYM) makes robotics used by stores to automate their warehouse operations. The autonomous robots Symbotic develops are powered by AI technology, which informs their functions. The company's clients include two of the largest retailers: Walmart and Target.
Symbotic is a relatively new company, and it is not profitable, posting a $41 million net loss in the most recent quarter. However, its revenue grew some 58% year over year to $424 million, and it anticipates $450 million to $470 million in revenue this quarter.
Symbotic stock is trading at $41 per share with a price target of $58, so analysts see big growth. The shares are up 33% over the past year and have a three-year annualized return of 44.8%.
Photo: Depositphotos 9. AMD: Average annualized 5-year return of 42.3% Advanced Micro Devices (NASDAQ:AMD) is a direct competitor of NVIDIA, as it specializes in GPU chips for computers and gaming. It has lagged NVIDIA in developing AI-enabled chips.
However, it is making up for lost time by investing heavily in AI to try to dent NVIDIA's massive market share advantage. Last year, AMD released its Instinct MI300 AI chips , which are designed for high-performance computing and data centers,
Those chips are the fastest-ramping product in company history. In the first quarter, AMD's data-center revenue grew 80% year over year driven by the AI chips - a trend that should continue.
AMD stock is up 48.3% over the past year, and it has a five-year average annualized return of 42.3%.
Photo: Depositphotos 10. IBM: Average annualized 5-year return 5.5% International Business Machines, better known as IBM (NYSE:IBM), has been given new life in the AI age. Through its watsonx platform, IBM has carved out a niche, as the software is used to govern AI models for companies, making sure the AI content and data is accurate.
Watsonx is also used to train, evaluate and develop AI models. Since the platform was launched last year, IBM has seen growth every quarter and already has a $1 billion book of business. This growth engine and IBM's cheap valuation at a P/E of 19 make it one to watch.
IBM stock is up 33.6% over the past year and has a five-year annualized return of 5.5%.
What is AI ?
AI is technology that is designed to perform tasks that would otherwise require human intervention, like digital assistants, autonomous cars, and GPS, to name a few examples. It is able to do so through algorithms that seek to model the decision-making process of humans by using data.
The more data an AI gathers, the more it“learns,” enabling it to produce better decisions. This process is also known as machine-learning.
Generative AI is another term you hear a lot about. It refers to what is called“deep machine learning,” in which the AI models can process large amounts of raw data that is not supervised or structured by human intervention, using all that data to create new content.
We are still in the formative days of AI, so what the future will hold remains to be seen . However, this technology will certainly disrupt industries, create new ones, lead to data privacy and ethics concerns, and be subject to regulations as it develops.
The risks of investing in AI stocks It will be increasingly difficult to categorize AI stocks in the years ahead because the technology will be so intertwined in all businesses.
For now, it is kind of like the early days of personal computers and internet stocks; there will be companies we barely know now or haven't even heard of yet that will grow into behemoths. For every one of those, there will be many that get acquired or swept into the dustbin of history. Anyone remember Lycos, Excite, or eToys?
Thus, investors should be very careful about looking for the next high-flier because almost any company could also easily be the next bust. One metric investors should look for is profitability.
If a company isn't profitable or at least moving toward it, it may be a red flag, particularly if revenue is not increasing at a robust clip. An even bigger red flag is companies with high valuations that aren't generating consistent profits.
The best of what's around
This list reflects companies that are large, established brands that should be around for years to come and benefit from the AI wave.
However, this is a fast-evolving industry, so investors will want to keep a close eye on it because AI should be an engine of growth for a long time.
MENAFN24052024005205011743ID1108254730