Artificial intelligence is present for an extended period, yet its significance heightened notably following the launch of ChatGPT and a multitude of similar applications in late 2022. These applications boast capabilities such as generating reports, analyzing data, and optimizing various tasks, fueling a surge in AI-related stock investments throughout 2023, a trend that has continued into 2024.
Artificial intelligence, automation, and robotics are causing significant disruptions across nearly every industry. Over the past year, there has been a direct glimpse into remarkable advancements in AI technology, highlighted by GitHub’s Copilot AI code generation software, OpenAI’s ChatGPT, AI chatbot, and Google’s Gemini AI model.
In today’s dynamic landscape, the adoption of AI technology is paramount across various sectors, spanning from machine learning and sophisticated language models to smart devices and autonomous vehicles. Companies that fail to embrace this transformation risk fading into irrelevance. While many businesses can leverage AI to their advantage, only a handful of stocks truly center their operations around AI and automation, positioning them as leaders in the ever-evolving market.
What are the top 10 AI stocks?
ABBO News Financial Experts has pinpointed the top 10 AI stocks, each standing out for distinct reasons, some offer stability coupled with impressive earnings growth, while others lean towards the speculative side. With a diverse range to choose from, there’s an AI stock suited for every investor’s preference and risk tolerance.
Alright, let’s dive into the world of the top 10 AI stocks:
- Nvidia Corporation (NVDA)
- Meta Platforms, Inc. (META)
- Adobe Inc. (ADBE)
- Microsoft Corp. (MSFT)
- Alphabet Inc. (GOOG, GOOGL)
- Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
- C3.AI, Inc. (AI)
- Arista Networks, Inc. (ANET)
- Amazon.com Inc. (AMZN)
- Tesla, Inc. (TSLA)
Nvidia Corporation (NVDA)
- Year Return: [6%]
- Market Cap: [2.20 trillion USD]
Pros:
- Strong presence in growth areas like cloud computing, AI, IoT, the metaverse, and online gaming.
- Leading the autonomous vehicle market with Drive PX self-driving platform.
- High barrier to entry due to complex GPU R&D.
Cons:
- Vulnerable to changes in the PC market.
- Intense competition in the early-stage autonomous vehicle sector.
- High Price-to-Sales ratio (26%), signaling valuation risk.
Overview of the company
Nvidia, renowned for its graphics cards, also delves into producing microchips tailored for autonomous driving vehicles and AI applications. Led by CEO Ginseng Huang, Nvidia aims to lead the charge in integrating AI across various industries.
Nvidia stands out as the top-performing AI stock in the past year, witnessing a significant surge in earnings per share (EPS) in 2023, with analysts forecasting robust EPS growth. It boasts the highest projected 5-year EPS growth among its peers.
Nvidia is anticipated to achieve a 21.9% EPS growth next year. Despite a high current price-earnings (P/E) ratio of 75.9%, the valuation appears justified given the expected earnings growth trajectory, which investors are factoring into their decisions.
Furthermore, Nvidia engages in share buybacks, enhancing long-term stock performance, with a buyback yield of 0.7%. Over the last decade, it has been one of the top-performing stocks, delivering an average annual return of 68.8%.
Meta Platforms, Inc. (META)
- Year Return: [138.1%]
- Market Cap: [1.34 trillion USD]
Pros:
- A massive social media user base benefits advertiser.
- Increasing ad revenue per user.
- AI integration enhances user engagement and ad targeting.
Cons:
- Fierce competition in social media, especially among youth.
- Regulatory uncertainties may restrict data use.
- Metaverse investment entails high expenses and uncertain outcomes.
Overview of the company
Meta, the parent company of Facebook, Instagram, and WhatsApp utilizes artificial intelligence (AI) across various aspects of its operations, including integrating it with virtual reality and translation services for communication purposes.
In terms of stock performance, Meta stands out as the second-best AI stock over the past year. Although its earnings per share (EPS) experienced a decline in 2022, there are signs of recovery, with analysts predicting healthy growth over the next five years, including a projected 15.4% increase in 2024.
Comparing its price-to-earnings (P/E) ratio to the S&P 500 average, Meta’s P/E ratio sits at 33.7%, with a forward P/E of 21.7%. Despite already experiencing significant growth, the stock remains fairly priced considering its promising prospects.
Additionally, Meta has been actively repurchasing its shares, with a current buyback yield of 2.2%. Over the past decade, the stock has demonstrated strong performance, averaging annual returns of 21.3%, outpacing the S&P 500’s average return of approximately 12.0%.
Adobe Inc. (ADBE)
- Year Return: [23.25%]
- Market Cap: [217.33 billion USD]
Pros:
- Diverse product range.
- Recurring revenue model.
- Strong brand recognition.
- Continuous innovation.
- Global presence.
Cons:
- Vulnerable to economic cycles.
- Subscription fatigue risks.
- Intense competition.
- Dependency on creative professionals.
- Integration challenges due to acquisitions.
Overview of the company
Adobe is known for its lineup of creative content software and various applications geared towards marketing and e-commerce. One of its notable advancements is the Firefly generative machine learning model, which is catching the attention of customers across platforms like Photoshop and Illustrator. Moreover, Adobe has integrated its Sensei AI and machine learning technology into Adobe Analytics, Campaign, and Target products.
Recently, Adobe introduced an AI assistant in its Reader and Acrobat applications, enabling users to search, summarize, and address queries regarding PDF documents. Privilege, a representative from Adobe, emphasizes the company’s commitment to investing in new product extensions, particularly focusing on generative AI technology.
Microsoft Corp. (MSFT)
- Year Return: [50.88%]
- Market Cap: [3.16 trillion USD]
Pros:
- Diverse product portfolio.
- Cloud computing dominance.
- Strong brand recognition.
- Innovation and research.
- Global reach.
Cons:
- Dependency on Windows.
- Competition.
- Regulatory challenges.
- Integration challenges.
- Security and privacy concerns.
Overview of the company
Microsoft Corporation is a global technology company renowned for its software products, services, and solutions. Established by Bill Gates and Paul Allen in 1975, Microsoft has grown into one of the world’s most influential and profitable corporations. Microsoft has reportedly invested $13 billion in OpenAI and has integrated ChatGPT into its Bing search engine. Additionally, Microsoft has combined all its AI products into a unified AI experience known as Microsoft Copilot. In March 2024, Microsoft announced a $650 million agreement with AI startup Inflection, granting Microsoft access to Inflection’s models and enabling the hiring of its co-founders and the majority of its 70-person team to work for Microsoft AI. Analyst Joseph Bonner suggests that Microsoft’s investments in AI and cloud technologies position the stock as a top choice for business technology investments.
Alphabet Inc. (GOOG, GOOGL)
- Year Return: [18.76%]
- Market Cap: [1.90 trillion USD]
Pros:
- Dominance in Internet search.
- Diverse revenue streams.
- Innovation and technology leadership.
- Strong financial position.
- Global reach and brand recognition.
Cons:
- Regulatory examination.
- Dependence on advertising revenue.
- Competitive pressures.
- Talent retention and competition.
- Ethical and social responsibility concerns.
Overview of the company
Alphabet, the parent company of Google and its subsidiary YouTube, utilizes AI and automation extensively throughout its operations, encompassing everything from setting advertising rates to promoting content and even filtering spam in Gmail. In March 2023, Google introduced its Bard AI chatbot, followed by the announcement of Gemini, its most advanced AI model, in December. Alphabet’s stock experienced a surge in March indicating discussions with Apple Inc. (AAPL) regarding the potential licensing of the Gemini AI engine to enhance iPhones. According to privilege, Google stands out as a leader in the development of generative AI technologies.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
- Year Return: [71%]
- Market Cap: [733.23 billion USD]
Pros:
- Leading semiconductor manufacturer.
- Strong partnerships with tech giants.
- Consistent revenue growth.
- Technological innovation.
- Global manufacturing footprint.
Cons:
- Dependency on global semiconductor demand.
- Vulnerability to supply chain disruptions.
- Intensive capital expenditure requirements.
- Competitive pressures.
- Environmental and regulatory challenges.
Overview of the company
Taiwan Semiconductor Manufacturing Company (TSMC) holds the title of the world’s largest pure-play semiconductor foundry. It produces all the advanced AI semiconductors for Nvidia and other AI chipmakers. In recent months, TSMC’s shares have surged to extraordinary levels, driven partly by analysts raising price targets and attributing the surge to the booming demand for AI chips. The recent limitations imposed by the U.S. on technology sales to China are expected to have little effect on chip demand. Revenue growth for TSMC is projected to remain above 20% in 2024 and beyond.
C3.ai, Inc. (AI)
- Year Return: [-25%]
- Market Cap: [3.07 billion USD]
Pros:
- Specialization in enterprise AI solutions.
- Diverse customer base across industries.
- Potential for high growth.
- Innovation and technology leadership.
- Strong financial backing.
Cons:
- Relatively smaller market presence.
- Dependency on corporate IT spending.
- Competition from larger AI vendors.
- Integration challenges.
- Regulatory and ethical considerations.
Overview of the company
C3.ai offers software that enables users to deploy AI applications on a large scale, distinguishing itself as one of the few pure-play AI stocks directly involved in creating AI projects. Although the stock began trading in 2020 and lacks an extensive track record, it merits consideration due to its significant gains over the past year. Analysts forecast a healthy 50.9% yearly EPS growth over the next five years, indicating a trend toward reduced losses as the company strives for profitability.
While C3.ai possesses favorable attributes, investing in this stock remains highly speculative. Its short trading history limits the availability of metrics for predicting future performance. Despite a recent uptrend, it currently trades at a fraction of its 2020 peak.
Arista Networks, Inc. (ANET)
- Year Return: [78%]
- Market Cap: [93.04 billion USD]
Pros:
- Networking solutions specialization.
- Strong customer loyalty.
- Focus on cloud networking.
- Innovation and technology leadership.
- Solid financial performance.
Cons:
- Competition from established and emerging vendors.
- Dependence on technology trends.
- Regulatory challenges.
- Integration risks with acquisitions.
- Vulnerability to economic downturns.
Overview of the company
Arista Networks specializes in providing cloud networking solutions to internet companies, cloud service providers, and enterprise data centers. Its high-performance cloud networking solutions and high-capacity data center switches provide the processing demands of intensive AI workloads. In November 2023, Arista’s CEO Jayshree Ullal established a fresh goal of reaching $750 million in yearly revenue from AI networking by 2025. Probably, Arista is uniquely positioned to capitalize on the rapid growth in cloud-based data center networking, driven by advancements in generative AI technology.
Amazon.com Inc. (AMZN)
- Year Return: [76%]
- Market Cap: [1.92 trillion USD]
Pros:
- Extensive product selection.
- Prime membership benefits.
- Cloud computing dominance.
- Innovation and disruption.
- Global presence.
Cons:
- Labor practices.
- Regulatory scrutiny.
- Counterfeits and fake reviews.
- Environmental impact.
- Dependency on third-party sellers.
Overview of the company
Amazon is not just an online retailer, it also plays a significant role in cloud computing and data storage. This involvement enables the company to offer a platform for creating, training, and deploying AI projects. Additionally, Amazon provides AI-powered software and products like Alexa and Echo, which utilize voice recognition and data retrieval to answer questions.
While Amazon faced challenges in sustaining earnings growth in recent years, analysts anticipate a turnaround. Despite a significant drop in share value in 2022 due to negative earnings, the stock rebounded in 2023 as earnings returned to positive territory. Analysts project a healthy 25.9% EPS growth in 2024, and the company maintains a “B” financial health rating.
Although Amazon trades at a relatively high P/E ratio of 59.3%, the forward P/E stands at a more reasonable 40.7%. It’s worth noting that Amazon typically commands premium valuations. Despite fluctuations, the stock has delivered strong long-term performance, averaging 25.0% returns per year over the past decade.
Tesla, Inc. (TSLA)
- Year Return: [-19%]
- Market Cap: [516.71 billion USD]
Pros:
- EV technology leader.
- Innovative product lineup.
- Strong brand image.
- Global expansion.
- Diversification into energy solutions.
Cons:
- Production challenges.
- Regulatory uncertainties.
- Increasing competition.
- Financial volatility.
- Quality and reliability concerns.
Overview of the company
Tesla is extending its influence into the kingdom of artificial intelligence, particularly with its self-driving car technology. Elon Musk, the controversial CEO of Tesla, once stated, “The goal is not to be a car company”, and the company’s actions certainly align with that vision.
In recent years, Tesla’s earnings per share (EPS) have been on an upward trajectory. With an average yearly EPS growth rate of 171.9% over the last three years, Tesla tops the list in terms of EPS growth. While future growth appears to be more moderate, Tesla has a history of surprising investors and analysts.
Analysts anticipate a decrease in EPS for the current year, followed by an increase next year, resulting in relatively stable EPS over that period. With a “B” financial health rating, Tesla trades at a price-to-earnings (P/E) ratio of 41.3%. Although the stock has seen gains over the past year, it remains below its 52-week high. Over the last decade, Tesla’s stock price has delivered average returns of 27.5%. That is why we include Tesla in our article “What are the top 10 AI stocks”.
Conclusion
In conclusion, the world of AI stocks offers investors a glimpse into the future of technology and innovation. Companies at the forefront of AI development are not only revolutionizing industries but also presenting profitable investment opportunities. Whether it’s giants like Alphabet and Microsoft or innovative players like NVIDIA and Tesla, the potential for growth in AI stocks is undeniable.
However, it’s important for investors to approach AI stocks with caution and conduct thorough research before making investment decisions. Although the opportunity for significant profits exists, so do the inherent risks associated with any swiftly evolving industry.
As AI continues to reshape our world, investing in the top 10 AI stocks could position investors to benefit from the ongoing advancements in artificial intelligence. So, keep a close watch on these companies, stay informed about industry trends, and consider incorporating AI stocks into your investment portfolio for the long term.
