Industries worldwide are undergoing transformative changes fueled by the remarkable power of Artificial Intelligence (AI). This technology revolution is led by top-tier tech companies that have become trailblazers in the field, driving their market valuations to unprecedented heights. Companies involved in AI product development and services are poised for substantial growth in the near future, as quarterly reports from tech giants highlight the immense potential AI possesses. Get ready for an AI revolution that will elevate tech companies to new levels of success. In this article, we will explore a selection of AI stocks worth watching, showcasing their strengths, growth potential, and market positions, providing valuable insights for investors seeking exposure to this rapidly expanding sector.
Top AI Stocks To Consider
Microsoft (MSFT)
When it comes to high-cap tech stocks worthy of attention, Microsoft stands out as a prominent player with a long-standing presence in the industry. With a market cap already exceeding $2.5 trillion, Microsoft's expansion shows no signs of slowing down. The company's investment in OpenAI and its seamless integration into its infrastructure position it for remarkable success.
While Microsoft already holds a dominant market share and a strong foothold in the industry, its foray into AI is only the beginning of its ambitions.
Recognizing the value of AI, Microsoft has swiftly integrated it into its Bing search engine. The company aims to capture a significant portion of the search engine market currently dominated by Alphabet, a move that could translate into substantial revenue generation. Even a one percent market share gain could yield billions in revenue. As one of the top tech stocks reaching new highs, MSFT stock is currently trading at $335, marking a 41% year-to-date increase. From its January value of $222, the stock has shown impressive growth, and it appears poised to end the year on a positive note.
Beyond AI, Microsoft stands to benefit from its cloud computing business, Azure. In 2022, Azure generated $75.3 billion in revenue, with a recent quarter growth of 16%, reaching $22.1 billion. The company also boasts a dividend yield of 0.80% and recently announced a quarterly dividend of $0.68. With a solid market position and significant revenue generation from its cloud computing segment, Microsoft is a force to be reckoned with in the tech industry.
Tesla (TSLA)
Next on the list of top tech stocks to watch is Tesla (NASDAQ: TSLA), the renowned electric vehicle (EV) manufacturer, which currently boasts a market cap of $850 billion, with even greater potential ahead. As of today, TSLA stock is trading at $274, marking an impressive 99% increase over the past six months. Year to date, the stock has surged by 153% and has shown a remarkable 45% growth in the past month alone. The momentum behind this stock seems unstoppable. The recent surge in Tesla's stock can be attributed to its strategic agreements with General Motors (NYSE: GM) and Ford (NYSE: F). Additionally, Rivian Automotive (NASDAQ: RIVN) recently announced that it will allow its drivers to access Tesla's Supercharger network throughout North America. This move positions Tesla as an industry leader, as other EV manufacturers may follow suit and join the network.
In addition to expanding its EV lineup and driving sales, Tesla benefits from a full $7,500 federal tax credit on all variants of the Model 3. With a long-term goal of producing 20 million vehicles annually, Tesla is diligently working to reduce costs. If this ambitious goal becomes a reality, it could propel Tesla to new heights. While the stock has already doubled since the beginning of the year, there is still room for further growth.
One compelling reason to invest in Tesla lies in its commitment to expansion and innovation. With visionary leader Elon Musk at the helm, this tech company has the potential to reach new horizons. Musk consistently strives for improved quality and brings cutting-edge technology to the forefront. Furthermore, Tesla has the capacity to become a leader in the AI space, which could significantly impact the stock's value. Already holding a dominant position in the electric vehicle industry and with recent collaborations strengthening its standing, Tesla is well-positioned for future success.
IBM (IBM)
IBM, a renowned legacy tech company, operates as an integrated provider of hardware, software, and services for large enterprise customers. Notably, its mainframe computer systems continue to be widely utilized in specific industries, and the company consistently secures lucrative multi-year technology deals worth hundreds of millions of dollars each.
With regards to AI, IBM's strategy focuses on leveraging the technology to enhance human intelligence, boost efficiency, and reduce costs. In the healthcare industry, IBM's AI technology has been instrumental in developing personalized care plans, expediting the drug development process, and improving the quality of care, although it divested its Watson Health business in early 2022. In the financial services sector, thanks to its acquisition of Promontory Financial Group in 2016, IBM employs AI to assist clients in tackling the intricate realm of financial regulatory compliance.
While the market for AI products and services is fragmented, IBM emerges as a leader in the industry. Market research firm IDC ranked IBM as the top provider of AI software platforms, boasting a 13.7% market share in 2020, representing a remarkable 46% increase from the previous year. IBM's transformation journey is complex and encompasses various growth opportunities beyond AI. However, for investors seeking a company well-positioned to capitalize on the AI boom, IBM presents a compelling choice.
Amazon (AMZN)
Few companies have embraced AI as extensively as Amazon. Founder and executive chairman, Jeff Bezos, has been a staunch advocate for AI and machine learning, recognizing their immense potential. While Amazon initially emerged as an online retailer, technology has always been deeply ingrained in the company's DNA. Today, Amazon leverages artificial intelligence across various fronts. From Alexa, its industry-leading voice-activated technology, to Amazon Go's cashier-less grocery stores, and Amazon Web Services (AWS) Sagemaker, the cloud infrastructure tool that facilitates the deployment of high-quality machine learning models for data scientists and developers, AI permeates multiple aspects of the company's operations.
Notably, Amazon's e-commerce business relies on AI algorithms that power its exceptional recommendation engines for e-commerce, video streaming, and music streaming. Additionally, AI plays a pivotal role in determining product rankings and enhancing the customer experience. Furthermore, Amazon's logistics operations greatly benefit from its AI capabilities, enabling improved scheduling, and rerouting, and enhancing delivery accuracy and efficiency. The company has also long pursued the implementation of drone delivery, presenting yet another AI application within its expansive portfolio.
Quantifying the precise impact of AI on Amazon's business is challenging. However, it is undoubtedly a critical component of the company's competitive advantage. Throughout its history, Amazon has consistently been at the forefront of embracing emerging technologies, such as e-commerce, e-books, cloud computing, video streaming, and voice-activated technology. AI serves as a foundational infrastructure that empowers Amazon to swiftly and effectively expand into new business ventures.
Alphabet (GOOGL)
Alphabet, the FAANG behemoth, has long been recognized as a formidable presence in the AI field, even before the ChatGPT frenzy. While LLMs have captured investors' attention, ChatGPT is likely just the beginning of a series of profoundly powerful technologies that we need to familiarize ourselves with. Alphabet's consumer-facing LLM, Bard, presents an intriguing response to ChatGPT. Comparing the two technologies at this stage is challenging, as they possess unique strengths and weaknesses. However, many believe the odds of Alphabet creating an LLM superior to ChatGPT are quite high. Therefore, my outlook for GOOGL stock remains bullish.
Amid the AI rally, Alphabet's shares experienced a surge following a promising I/O event that unveiled a wave of AI potential. Despite this, experts argue that the AI innovator still appears relatively undervalued compared to other tech companies with comparable or even inferior AI capabilities.
As of now, GOOGL stock trades at a trailing price-to-earnings (P/E) multiple of 28.7 or 22.8 times its forward P/E. So, a P/E multiple in the 20s does not indicate a bubble. In this context, we consider Alphabet to be relatively undervalued within the AI landscape. While Alphabet is undoubtedly a well-established behemoth, it should not be viewed as a market leader that is solely vulnerable to disruption. If any firm has the potential to revolutionize the current state of Google Search, it is Google itself with the aid of AI.
Conclusion
The AI revolution is in full swing, and tech companies are at the forefront of this transformative wave. Microsoft, Tesla, IBM, Amazon, and Alphabet have emerged as key players, leveraging AI to drive innovation, enhance their products and services, and secure a competitive edge. These companies have demonstrated remarkable growth, with expanding market caps, strategic partnerships, and ambitious goals for the future. Investors looking to capitalize on the AI boom should closely monitor these stocks, as they possess the potential for continued success and substantial returns. As AI continues to reshape industries, these tech giants are well-positioned to lead the way and redefine the future of technology.
