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 five of them are trillion-dollar businesses, underscoring the new technology’s importance to 2021’s economy. The growth of artificial intelligence is also enviable. Leading market intelligence firm IDC projects the AI industry to surge 16.4% in 2021, reaching a size of $554 billion by 2024.
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 all-time highs of $835.
As the most valuable public company in the world, Apple has plenty of money to invest in the technologies of the future. In fact, its cash on hand is $204 billion as of last quarter, so it’s no surprise the company is using considerable resources to expand its commitment to artificial intelligence. Bringing AI to ubiquitous Apple devices helps to further cement the company’s enviable hardware-software ecosystem that made it an empire. This year, Apple recruited a prominent Google artificial intelligence expert, Samy Bengio, and is also building out a new campus in the Research Triangle of North Carolina. The campus, which will house jobs in machine learning, AI and software engineering, will create at least 3,000 jobs.
Alphabet (GOOG, GOOGL)
Alphabet, the parent company of Google, is a great example of a massive company — it’s worth about $1.7 trillion — using AI on a daily basis to improve its operations and profitability. Voice search, digital ad pricing, email spam filters and relevant search results all use internally developed artificial intelligence tools and deep learning techniques to drive the world’s most dominant search engine. A leading player in self-driving cars since beginning its efforts in 2009, Alphabet’s autonomous vehicle subsidiary Waymo is worth more than $30 billion. 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.
Every year, Amazon founder 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, one of the leading consumer-facing speech recognition products. It’s not just Alexa where AI has improved Amazon’s operations; like Google, search relevancy is vital to the AMZN business, and artificial intelligence helps constantly iterate and improve search results. But Amazon, worth more than $1.8 trillion, doesn’t hoard its AI expertise for internal purposes: Amazon Web Services, the leading cloud computing platform, offers machine learning services to customers. Clients include a who’s who of corporate America, such as Netflix (NFLX), Verizon Communications (VZ) and many more. Last quarter, AWS operating income accounted for 47% of Amazon’s overall operating income.
Microsoft Corp. (MSFT)
It’s probably becoming obvious by now that 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. Due to its investment, Microsoft will become OpenAI’s preferred partner for commercialization should AGI be achieved, earning MSFT a ticket to one of the most potentially lucrative lotteries in history. In April, Microsoft announced it was spending $19.7 billion to buy leading conversational AI company Nuance Communications (NUAN), marking Microsoft’s commitment to applying AI to improve health care outcomes, where Nuance solutions are currently used in 77% of U.S. hospitals.
IBM Corp. (IBM)
IBM 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 more than $70 billion annually, and IBM is plowing profits back into areas of high potential growth like the cloud, data and artificial intelligence. With $11 billion in free cash flow over the last 12 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. Like Microsoft, IBM also sees broad applications for AI in health care, with its products aiming to help individualize care and accelerate the notoriously slow drug development process. IBM is putting AI to work in finance, too, applying it to areas like compliance and customer experiences.
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 team. Automating self-teaching algorithms to improve Facebook’s news feed algorithm — utilized by 2.85 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). The company is using AI to marry e-commerce more closely with Instagram, planning to roll out visual search, allowing users to click on images to shop for similar products. Facebook’s Open Loop initiative, aimed at guiding wise tech and AI regulation, also has some potential to be self-serving.
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. Shares are up 35% in the last year, and although it’s not yet profitable, the company should start cranking out earnings as it scales.
Micron Technology (MU)
Nvidia isn’t the only semiconductor player worthy of mention among the top AI companies. After all, even the world’s most remarkable software is limited by the physical constraints imposed upon it by the hardware it runs upon. Micron’s chips power the infrastructure that enables much of the progress in AI, particularly when it comes to edge computing, which involves bringing data storage and computation closer to the sources of data themselves for greater efficiency. In essence, Micron’s products help accelerate the speed of certain AI processes, and the current global chip shortage, combined with Micron’s expertise and an industry in secular growth mode, combined to send Micron to its largest-ever sequential improvement in earnings per share last quarter.
Taiwan Semiconductor Manufacturing (TSM)
Although a bit more removed from tangible artificial intelligence applications like Facebook’s news feed or DocuSign’s contract analysis, no list of the best AI companies in the world would be complete without Taiwan Semiconductor, a foundry that actually produces semiconductors designed and used by Nvidia, Apple, Qualcomm (QCOM) and other industry leaders. With a market capitalization of more than $500 billion, TSM is contracted out by the world’s largest tech players to produce the chips that make the magic happen; it reportedly accounts for 54% of global foundry revenue. Taiwan Semiconductor’s high-performance computing (HPC) segment includes the more onerous processing businesses, including artificial intelligence, and although the company expects revenue to be roughly flat in the second quarter, HPC is still growing.
10 of the top AI companies:
— Nvidia Corp. (NVDA)
— Apple (AAPL)
— Alphabet (GOOG, GOOGL)
— Amazon.com (AMZN)
— Microsoft Corp. (MSFT)
— IBM Corp. (IBM)
— Facebook (FB)
— DocuSign (DOCU)
— Micron Technology (MU)
— Taiwan Semiconductor Manufacturing (TSM)