AI could be the 21st century’s biggest new industry.
Long a focal point of science fiction, AI is no longer a curious theme to ponder for the distant future; it’s here. The best artificial intelligence stocks to buy already use processes like machine learning and neural networks on a daily basis. In fact, if you took away AI capabilities from the following companies, their profitability would instantly plummet — and three of them are trillion-dollar businesses, underscoring the new technology’s importance to 2021’s economy. The growth of artificial intelligence is also enviable; a 2020 report from Grand View Research estimated the global market size to be $39.9 billion in 2019 and projected a 42.2% compound annual growth rate between 2020 and 2027. Here are 10 AI companies making waves right now.
Nvidia Corp. (ticker: NVDA)
Nvidia is a no-brainer inclusion among the best AI stocks to buy, as the high-end chipmaker is the go-to provider of specialized semiconductors that power some of the most exciting areas in AI, from high-performance gaming to autonomous vehicles. The company, which announced the purchase of U.K.-based chip designer Arm for $40 billion last year, is now planning to build an AI lab in Cambridge, England featuring an AI supercomputer. Nvidia’s graphics processing units (GPUs) will also be used to power “Leonardo,” the world’s fastest AI supercomputer. Few companies are more all-in on artificial intelligence than Nvidia, a strategy that has worked well for shareholders as its stock has soared from about $25 a share in early 2016 to recent highs around $590.
Alphabet (GOOG, GOOGL)
Alphabet, the parent company of Google, is a great example of a massive company — it’s worth nearly $1.2 trillion — using AI on a daily basis to improve its operations and profitability. Voice search, digital ad pricing, and relevant search results themselves all use internally developed artificial intelligence tools and deep learning techniques to drive the world’s most dominant search engine. Google employs some of the world’s top AI researchers to stay on the cutting edge of the field and has been developing self-driving car technology since 2009. Alphabet’s autonomous vehicle unit, Waymo, was valued at $30 billion in its last funding round. Google’s leadership in quantum computers, which could supplant traditional computing and dramatically accelerate technological progress in the future, is yet another feather in GOOG’s hat as one of the best AI stocks to buy.
Salesforce has been one of the premier large-cap growth stocks in recent years, and in 2020 it became one of the newest members of the vaunted Dow Jones Industrial Average, replacing Exxon Mobil (XOM) in the blue-chip benchmark. As the leader in customer relationship management software, Salesforce’s Einstein software uses AI to add major value for customers, scraping data to identify hard-to-find trends, prioritize hot sales leads, predict superior marketing copy and more. Analysts expect earnings per share to grow more than 17% annually over the next five years. The business-to-business software sales company still has plenty of room to run, especially if Salesforce’s clients continue to reap the rewards of the AI-powered Salesforce Einstein technology.
Every year, Amazon CEO Jeff Bezos writes a letter to shareholders highlighting what the business has accomplished and where it’s currently devoting its focus and resources. Artificial intelligence has been an important area of emphasis in those letters for years now, and you can see the results in Amazon’s Alexa devices, which have led the way in consumer-facing speech recognition. Worth more than $1.5 trillion, it’s not just Alexa where AI has improved Amazon’s operations; like Google, search relevancy is very important to the AMZN business, and artificial intelligence helps constantly iterate and improve search results. But Amazon doesn’t hoard its AI expertise for internal purposes: Amazon Web Services, the leading cloud computing platform, offers machine learning services to customers. Last quarter, AWS operating income accounted for more than 57% of Amazon’s overall operating income.
Microsoft Corp. (MSFT)
The most valuable tech companies in the world, without exception, all invest in artificial intelligence. Microsoft’s cloud computing service, Azure, is home to AI-driven tools for medicine, language, robotics, medical imaging and many other areas. A 2019 $1 billion investment in Elon Musk-founded OpenAI aims to produce the Holy Grail of AI, artificial general intelligence (AGI) — the technology that can do anything human intelligence can. Although this is definitely swinging for the fences, OpenAI is already making breakthroughs. Recently, it produced a neural network called DALL-E that can produce a dizzying array of custom images from text alone. While threatening stock photography might not sound groundbreaking, it’s an impressive landmark. Due to its investment, Microsoft will become OpenAI’s preferred partner for commercialization, cementing MSFT as one of the top AI companies in the world.
In U.S. News’ original write-up of the best AI stocks, circa early 2018, Twilio was worth less than $4 billion and was cited as having the greatest risk/reward of all 10 companies. Three years later, the cloud software business is worth more than $59 billion. Twilio makes cloud-based application programming interfaces (APIs) allowing developers to build voice, video and messaging features into their apps — and remains a wildly popular, useful and fast-growing service. Like some others on this list, Twilio’s high growth means high multiples. While only investors comfortable with greater volatility should consider TWLO, it still deserves to be mentioned as a top artificial intelligence company in 2021. Analysts expect profits to advance by more than 20% annually over the next five years.
IBM itself doesn’t have the same sway in the tech world that it once did. Frankly, its overall business has been in slow decline for years now. That said, it’s still a massive business, with revenue of at least $75 billion annually, and it’s plowing profits back into areas of high potential growth like the cloud, data and artificial intelligence. With $10.78 billion in free cash flow over the last twelve months, investors don’t need to worry about IBM’s sustainability, and the company has been working with partners including JPMorgan Chase & Co. (JPM) and Daimler AG to discover various practical applications for its efforts in quantum computing in their industries. IBM’s Watson technology, famous for dominating “Jeopardy!” contests, is also being put to use in health care, infrastructure, finance and other areas.
Facebook is deeply committed to machine intelligence. Since January 2018, the company has had Jerome Pesenti, a legend in the field who famously led IBM’s Watson division, running point on its AI Research team. Automating self-teaching algorithms to improve Facebook’s News Feed algorithm — utilized by 2.74 billion monthly active users — is central to FB’s success, and using AI to screen for hate speech and fake news has never been more important to the company (or society). Although Facebook is using its top-tier talent to develop useful tools like COVID-19 forecasting, it also built AI chatbots that unexpectedly began communicating in their own invented language in 2017, forcing the company to pull the plug. Facebook’s Open Loop initiative, aimed at guiding wise tech and AI regulation, also has some potential to be self-serving.
Transitioning from the largest social company in the U.S. to the largest social company in China, tech conglomerate Tencent is also one of the best AI stocks to buy. China’s first tech firm valued at more than $500 billion largely hit the jackpot with WeChat, a dynamic app ubiquitously used in China for messaging, payments, ride-hailing, social media, mail and other functions. One can imagine the practically endless ways machine learning and artificial intelligence can augment that service — and in the meantime, how WeChat’s more than 1 billion daily active users can be used to test and rapidly improve this technology. TCEHY has recruited several top AI experts in recent years from rivals including Microsoft and Baidu (BIDU). Tencent currently uses AI to improve its content, social media and gaming experiences and hopes to sell its AI solutions to the health care, agriculture, industrial and manufacturing sectors.
It might come across as surprising that an online document service like DocuSign would be classified as one of the top AI companies in the world, but it’s the way DocuSign is using artificial intelligence to revolutionize contracts — one of the unheralded pillars of modern society — that’s so exciting. In 2020, DOCU bought Seal Software, an AI company focused on contract analytics, for $188 million. Not only does DocuSign’s usage of natural language processing and machine learning uncover risks lying dormant in contracts, but it also identifies opportunities and dramatically accelerates deal flow by cutting down on legal legwork needed to close deals. The stock has more than tripled in the last year, but analysts expect DocuSign to grow earnings per share by more than 50% between 2021 and 2022.
The best AI stocks to buy:
— Nvidia Corp. (NVDA)
— Alphabet (GOOG, GOOGL)
— Salesforce.com (CRM)
— Amazon.com (AMZN)
— Microsoft Corp. (MSFT)
— Twilio (TWLO)
— IBM (IBM)
— Facebook (FB)
— Tencent (TCEHY)
— DocuSign (DOCU)