The buzz around artificial intelligence (AI) stocks has been unmissable. Spurred on by increased management focus during company earnings calls, the fascination around AI investment has soared. Nonetheless, it’s crucial to carefully navigate this wave of enthusiasm.
Generally, successful AI stocks are those leveraging AI to enhance their product range or to gain a competitive edge. It’s crucial, though, to steer clear of faltering companies that suddenly claim to have elaborate AI blueprints.
Boosted by the thrill of generative AI, the Nasdaq composite has seen a significant 35% jump this year. However, investors must also question whether some AI stocks are overinflated. Key points to consider: will tech incumbents be the victors in the generative AI race or will a fresh wave of AI startups prevail?
AI, at its core, utilizes computer algorithms. Its software programs are designed to replicate human abilities to learn, decipher patterns, and make predictions. The newest iterations of AI can even generate content.
High-potential AI stocks spread across various sectors, including chipmakers, software firms, cloud computing service providers, and tech behemoths that utilize AI tools for a range of applications.
Shares of Nvidia (NVDA), a front-runner in AI chip production, have skyrocketed by 209% this year. This leap follows first-quarter earnings surpassing expectations and a robust outlook. The company’s stock now appears on the IBD Leaderboard, a collection of leading stocks based on technical and fundamental metrics.
Large Language Models (LLMs), which aid AI systems in understanding human speech and writing, necessitate training data for specific tasks. Consequently, companies with large data reservoirs have an edge. Facebook-parent Meta Platforms (META) has open-sourced its Llama-v2 LLM, paving the way for competition for private models, such as OpenAI.
Other technology giants, such as Microsoft, continue to leverage their strategic partnerships with OpenAI to challenge Google in internet search and office productivity tools. Microsoft has introduced pricing for its “Copilot” AI software tools, and recently reported a considerable increase in Azure OpenAI Service’s customer base.
Regulatory scrutiny and intellectual property issues remain significant challenges facing generative AI companies. Despite these potential hurdles, there’s considerable excitement about generative AI’s potential to boost the U.S. economy, with the BlackRock Investment Institute referring to it as a potential “mega force.”
Artificial Intelligence is beginning to play a pivotal role in various industries. Companies like Amazon plan to integrate ChatGPT-style search into their online platforms. Amazon has been using AI for years to personalize its online retail offerings, recommend products to website visitors, and automate tasks in its fulfillment centers.
Software companies integrating generative AI tools into their products are set to see increased spending on software by their customers. One prediction from TD Cowen estimates that generative AI software spending will boom from $1 billion in 2022 to $81 billion in 2027.
Venture capital is also flowing into AI startups, and tech giants are widening their AI initiatives. For instance, Salesforce introduced Einstein GPT in March, which integrates OpenAI’s features across its software platform. Adobe, too, has recently unveiled generative AI services for creatives and marketers.
Despite these advancements, corporate adoption of AI technologies is still in the early stages. Nevertheless, as companies begin to recognize the potential of AI, stocks in this sector are becoming increasingly attractive. Whether it’s the mega-cap tech firms or the AI chip startups, the artificial intelligence wave is only set to rise.
