Artificial intelligence (AI) has changed the world as we know it. When I was a kid, I never would have thought I’d walk into a room and tell Alexa to turn my lights on or that I would trust a robot with my investing portfolio. Those were the kinds of things I saw in movies. Fast forward a couple of decades and these applications are commonplace.
Many of the companies that develop these state-of-the-art technologies are high-growth players that have attracted investors the likes of Warren Buffet, George Soros, and Bill Gates.
It’s not surprising that you want to jump into artificial intelligence stocks too. After all, a product that simplifies a process has the potential to generate millions if not billions of dollars in sales. As with any other sector, there are winners and losers in the AI space. If you’re going to invest, you should stand by the winners. You’ll find seven of them below.
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Best Artificial Intelligence (AI) Stocks
AI stocks are all tech stocks. These companies develop deep learning algorithms that have a wide range of uses, from carrying out simple day-to-day tasks to solving complex problems and even finding the best opportunities in the stock market.
The best stocks in the space are:
- Innovative. These companies never stop working to create the next best thing.
- Profitable. Technological innovation is expensive. It’s best if you have the profits to cover the cost.
- Fairly Valued. High valuations are commonplace in high-growth sectors like AI, but you still want to make sure you’re paying a fair price when you buy stock.
- Loved by Analysts. Analysts aren’t always accurate, but it’s a good sign that growth is on the horizon when the vast majority of researchers agree a stock is headed up.
- Protected by Intellectual Property. Technology is a competitive industry. If there’s no patent protection, competitors tend to take control.
Read on to find what we believe to be some of the top stocks to buy if you’re interested in gaining AI exposure.
Note. Tech stocks have had a rough time in the market over the past year. Some argue that the declines are coming to an end and now is the time to buy, while others suggest that the threat of a recession and continued Federal Reserve monetary policy tightening will result in continued declines ahead. Do your research and form your own educated opinion before investing in any stock — especially those in high-volatility, cyclical sectors like technology.
1. NVIDIA (Nasdaq: NVDA)
Best for investing in the technology that powers the AI industry.
- Performance: NVIDIA is down more than 37% year-to-date (YTD), but has gained more than 15% over the past year. The stock has climbed more than 420% over the past five years.
- Earnings: The company has beat analysts’ earnings expectations in the last four consecutive quarters. Earnings per share (EPS) has also increased for the last four consecutive quarters. In the most recent quarter, NVDA produced EPS of $1.18.
- Valuation Metrics: NVDA’s price-to-earnings ratio (P/E ratio), price-to-sales ratio (P/S ratio), and price-to-book ratio (P/B ratio) are 42, 15, and 15 respectively.
- Growth Potential: The average price target on the stock is $268.83, representing the potential for more than 42% growth over the next 12 months.
NVIDIA is one of the world’s leading chipmakers and semiconductor companies. The company’s crowning achievement took place in 1999 when it introduced the graphics processing unit (GPU) to the world.
The GPU was originally developed to accelerate the rendering of three-dimensional graphics, but the implications of the technology would reach far beyond graphics processing. Suddenly, massive amounts of data could be processed in the blink of an eye. Since its launch in 1999, NVDA’s GPUs have been part of nearly every machine learning breakthrough.
It would be fair to say that the company’s GPU technology is the heartbeat that keeps other AI companies alive.
Not only are NVIDIA’s chips used in various pieces of cutting-edge AI technology, they’re also a dominant player in the data center and cloud computing industries. The company controls 82% of the data center GPU industry.
Perhaps that’s why analysts love the stock so much. Of the 32 analysts who cover the stock, 27 rate it a Buy, five rate it a Hold, and there are no Sell ratings to speak of.
2. Amazon.com (Nasdaq: AMZN)
Best for diverse AI applications.
- Performance: AMZN has fallen more than 32% YTD and more than 28% over the past year. The stock has gained more than 128% over the past five years.
- Earnings: Amazon.com has beat analyst earnings expectations in two of the last four quarters. Earnings have been relatively sporadic, rising and falling from quarter to quarter.
- Valuation Metrics: AMZN’s P/E, P/S, and P/B ratios are 54, 2.35, and 8 respectively.
- Growth Potential: The average price target of $3,624.86 represents the potential for more than 57% growth over the next year.
Amazon.com is a dominant player in the stock market that seems to make its way onto countless best-of lists, whether you’re talking about the best AI stocks, the best retail stocks, or the best tech stocks. The online retail giant controls more than a quarter of U.S. e-commerce spending and shows no signs of losing its dominant position.
In fact, it was one of few companies that came out as a winner during the global COVID-19 pandemic. Consumers were afraid to leave home, leading to a bump in sales for the company. Following the pandemic, many people continued to shop on Amazon after being exposed to the process.
However, much of the company’s growth comes from its cloud computing arm, Amazon Web Services (AWS). AWS is the home of countless web-based AI programs and has quickly become a leader in the space. The platform doesn’t generate nearly as much revenue as the Amazon.com e-commerce platform, but gross margins of around 80% are a big boost to profitability.
AWS isn’t Amazon.com’s only venture into AI either. The company has been using deep learning technology in its search algorithms for quite some time. It’s also the developer of Alexa, an artificial intelligence virtual assistant that can turn lights on and off, open blinds, lock doors, and take care of several other tasks in a smart home.
Analysts are big fans of Amazon.com too. According to TipRanks, 38 analysts cover the stock, 36 of whom rate it a Buy. The stock also has one Hold and one Sell rating.
3. Alphabet (Nasdaq: GOOG | GOOGL)
Best for online advertising dominance.
- Performance: Alphabet stock is down more than 22% YTD and more than 6% over the past year. The stock has climbed more than 131% over the past five years.
- Earnings: GOOG has beat analyst expectations in three of the past four quarters. The company’s earnings have increased in every quarter with the exception of the most recent quarter in which Alphabet produced EPS of $25.70.
- Valuation Metrics: GOOG’s P/E, P/S, and P/B ratios are 19, 5.28, and 5.49 respectively.
- Growth Potential: Alphabet’s average price target is $3,252.22, representing the potential for more than 42% gains over the next 12 months.
When you think of Alphabet, the parent company of Google, you may not think it’s an artificial intelligence company. But it has been an integral part of the development of AI technology, especially as it relates to online search and advertising.
The company was one of the first to use machine learning when it incorporated AI into its Google Search product. It also actively uses artificial intelligence to make online advertising more effective.
Online search and advertising aren’t the only areas where Alphabet uses AI technology. The company started an autonomous driving project in the early 2000s and started testing its cars in 2009. In 2016, the company acquired Waymo, a self-driving taxi service concept company.
Although the Waymo subsidiary’s profitability may be a long way off, it’s a promising glimpse of what Alphabet’s capable of.
The company is also a major player in the smart home space with Google Home. Like Alexa, Google Home can turn on lights, change the thermostat, lock doors, and more. It’s Alexa’s biggest competitor in the smart-home market.
Alphabet is another stock analysts love too. Nine analysts currently cover the stock, all of whom rate it a Buy.
4. Apple (Nasdaq: AAPL)
Best for personal assistant dominance.
- Performance: Apple stock is down more than 17% YTD and up more than 20% over the past year. The stock has gained 285% in the past five years.
- Earnings: The company beat analyst earnings expectations in three of the past four quarters and came in line with expectations in the other. Earnings increased quarter over quarter in three of the past four quarters, and the company produced EPS of $1.52 in the last quarter.
- Valuation Metrics: AAPL’s P/E, P/S, and P/B ratios are 22, 6, and 33, respectively.
- Growth Potential: The average analyst price target is $186.61, representing the potential for more than 24% growth over the next year.
Apple is the world’s leader in the smartphone industry. It’s the company behind the iPhone, a device that nearly half of Americans own. It’s also one of the most popular growth stocks on the market, claiming a position in more exchange-traded fund (ETF) portfolios than any other stock.
The company was one of the pioneers in AI personal assistants. If you haven’t heard of Siri, chances are you live under a rock. With the simple “Hey Siri” command, a world of knowledge opens up to you. You can ask Siri to play music, tell you the weather forecast, or remind you when you need to water your garden.
Siri is one of the first and, in my opinion, the best AI personal assistants around.
The iPhone and Siri aren’t Apple’s only products either. The company commands a dominant position in the tablet and personal computer markets as well.
Although there have been some post-pandemic supply chain issues, and those issues may continue in the short term, Apple is a compelling long-term play. If you don’t believe me, take it from Warren Buffett, a long-time holder of AAPL.
Analysts love the stock too. Of the 27 who cover the stock, 21 rate it a Buy, six rate it a Hold, and none rate it a Sell.
5. IBM (NYSE: IBM)
Best for strong dividends.
- Performance: IBM shares are up 2.37% YTD and 1.43% over the last year. The stock has fallen over 4% in the past five years.
- Earnings: IBM beat analysts’ earnings expectations in three of the past four quarters. The company’s earnings were on a strong growth trajectory until the most recent quarter, when EPS came in at $1.40.
- Valuation Metrics: IBM’s P/E, P/S, and P/B ratios are 14, 2.25, and 6.3, respectively.
- Growth Potential: The average price target is $152.11, representing the potential for more than 9% growth over the next 12 months.
IBM has maintained a leadership position in business technology for more than a century. It’s done so by staying ahead of the curve in innovation.
As AI technology started to take hold, it was only a matter of time before IBM got involved. In 2010, IBM launched a question-answering artificial intelligence named Watson. The technology was named after the company’s founder, Thomas J. Watson.
Watson was one of the first AIs capable of answering questions in natural human language.
Today, Watson is used in a wide range of business applications. The AI can discover and solve inefficiencies in labor, sales, and just about every other aspect of a business. Watson Health is also becoming a staple among biotech companies and others in the health care space. The AI is part of multiple clinical development programs targeting devastating conditions like cancer, diabetes, and heart disease. It also helped scientists produce COVID-19 vaccines and continues to aid in the development of therapies for the virus.
IBM is a slow-to-flat growth stock. So, where’s the money? The company has consistently paid growing dividends to investors for decades and shows no sign of stopping that trend. The current dividend yield on the stock is 4.74%.
Maybe that’s why five out of nine analysts rate the stock a Buy, four rate it a Hold, and there are no Sell ratings.
6. Microsoft (Nasdaq: MSFT)
Best for feeling good about making money.
- Performance: MSFT is down more than 18% YTD and up more than 9% over the past year. The stock has gained more than 280% in the past five years.
- Earnings: The company has beat earnings expectations in all of the last four consecutive quarters. Earnings are somewhat sporadic but trend upward. Most recently, the company reported EPS of $2.22.
- Valuation Metrics: MSFT’s P/E, P/S, and P/B ratios are 28, 10.45, and 12.23, respectively.
- Growth Potential: The stock’s average price target of $357.01 represents the potential for more than 30% growth over the next year.
Microsoft is another Wall Street darling and one of the largest companies in the world. You likely know the brand and have used one of its products in the past. Microsoft claims dominant positions in the operating system market and the business software market with products like Windows and Office.
The company is also becoming a dominant player in the AI space.
Microsoft incorporates machine learning into all its software offerings to produce a better user experience. It’s also the parent company of Azure, one of the leading cloud computing solutions online today. Because cloud computing makes cloud-based AI possible, the company is an integral part of the artificial intelligence ecosystem.
You don’t just make money when you invest in Microsoft either. You get the feel-good effect too. Microsoft pioneered the AI for Good movement, one that drives AI developers to use the technology to solve the world’s biggest humanitarian, environmental, cultural heritage, and health problems.
Analysts love the stock too: 23 out of 24 of them rate it a Buy and one rates it a Hold. There are no Sell ratings to speak of.
Final Word
The stock market has been tough so far in 2022, and you may feel down about your investment portfolio. However, the most successful investors know that when the fear is high, it’s time to buy. You get more shares for your money when valuations fall.
However, wise, well-timed investment decisions are a must. Thoroughly research every decision you make, and be patient. There’s no shame in holding out until a rebound begins. It’s best to buy as close to the bottom as possible.