The digital revolution sweeping across every major industry globally is powered at its core by artificial intelligence (AI) and machine learning. In almost every application from hotel booking platforms to smart home devices to self-driving cars, AI is ubiquitous.
What Is Artificial Intelligence
Artificial intelligence refers to a set of technologies that use dataset patterns to make inferences and decisions. For instance, Tesla’s Optimus humanoid robot is backed by powerful AI computers. The robot uses classified and labeled predefined datasets to allow it to mimic human behavior.
As an investor, you can also be part of this revolution by putting your money in companies that use AI technologies or directly into AI companies. If you are interested in getting into the AI industry as an equity holder, here are tips on how to find the best AI stocks to invest in.
Growth potential of AI Industry
According to Fortune Business Insights, the AI industry is worth $347 billion in 2022. In the next 7 years or so, it will touch the $1.3 trillion mark, a compounded annual growth rate of 20.1%. The key growth drivers of the AI industry include retail, logistics, automotive, and the food and beverages industry.
However, the biggest tailwind for the AI industry will come from the healthcare sector at a projected 150% growth. In 2020, North America represented half of the AI market alone. That said, going forward, the Asia Pacific region is projected to take the lead in AI growth.
AI Stocks to Look Out For
Having seen the potential for the AI industry and the growth drivers, here are the top firms with AI as their business model centerpiece.
UiPath Inc.
This company provides an AI-powered platform for robotic process automation (RPA). It helps organizations automate processes, record operations, and create new automation processes through a simplified drag-and-drop exercise.
Currently, its share is trading at $11.80 against a $6.485B market capitalization. Compared to October 2022, its shares gained 9.23% in November, outpacing both the S&P 500 and the Business Services sector over the same period.
Thanks to its improving cost structure and its faster-than-expected growth in revenue, investors are optimistic about the future of UiPath.
NVIDIA Corporation
Trading at around $ 153.17, Nvidia is the largest graphics processing units (GPUs) producer, controlling 80% of the market. Data centers and PC gaming providers dominate its customer base, accounting for 91% of its revenue.
With its proprietary applications such as NVIDIA DGX systems, the company is giving data scientists specialized tools for AI exploration. Also, the company allocates 20% of its revenue to power its research and development initiatives.
Nvidia is making commendable efforts to diversify its business, and this gives it a positive outlook. The company entered a strategic partnership with Nintendo in 2017 to allow the Nvidia system to power Nintendo Switch on a chip. So far, 114.33 million units of Nintendo Switch consoles have been sold.
Nvidia’s partnership with Microsoft Azure is also projected to help sustain its data centre revenues.
International Business Machines Corporation
Founded in 1911, International Business Machines Corporation (IBM), uses AI to help organizations revamp their operations and workflows. In 2021, IBM was ranked the top AI firm by the International Data Corporation (IDC).
IBM’s market beta is at 0.88. This means its stock price is less risky and more stable than the market. Stock valuations also show that the stock is trading at a fairly cheap price ($ 146.68 vs a $202.23 valuation).
Whether organizations are looking at conversational AI services, scaling their machine learning solutions, or operationalizing AI ethics across their enterprises, IBM is the go-to solutions provider. Its Q3 revenue grew to $14.1 billion, a 15% year-over-year rise in constant currency. Both its infrastructure and hybrid cloud revenue grew 15% compared to the same quarter last year.
Conclusion
The AI sub-industry is arguably the best-performing in the larger technology industry. Firms such as Amazon, IBM, Tencent, Alphabet, and Intel are among the most innovative and impressive stocks to watch. However, as an investor, you must be keen on both risks and rewards as you sift through the stocks to buy. Always check the companies’ growth prospects and risk tolerance.
