Artificial Intelligence

Artificial Intelligence: Which Stocks To Buy

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Investor interest in artificial intelligence (AI) technology has skyrocketed over the past several months. There is immense potential in this new frontier. AI stocks are seen as the promising future, and they may very well be. But just like other market trendy buzzwords that have captivated the investor community, not every company that puts out an “AI press release,” staking a claim of their piece of the pie, will thrive.

AI, which allows computers to learn and solve problems like humans, is an advanced form of computer processing which includes machine learning and neural networks. Autonomous driving, which Tesla (TSLA) has sought to perfect for almost a decade, requires extensive AI functionality. Aside from automation and robotics, AI is used in voice recognition and voice assistant technology such as Amazon’s (AMZN) Alexa speaker and Apple’s (AAPL) Siri, which have existed for roughly that same length of time.

Let’s not forget IBM (IBM), which since the 90s, has (in a way) pioneered AI with its Deep Blue computer and Watson. The former defeated the world’s top chess champion, while the latter competed and won against top trivia contestants. In other words, artificial intelligence, at its core, isn’t new. What is new, however, is the race to control the technology. This was sparked by Microsoft’s (MSFT) AI advances with ChatGPT by way of its $10 billion investment in Open AI. Many analysts referred to an Microsoft’s AI bet as an "iPhone moment."

Microsoft secured a 75% share of OpenAI’s profits, which protects its $10 billion investment after which Microsoft would assume a 49% stake in OpenAI. Why is Microsoft making this deal? Consider that ChatGPT generates text automatically, using written prompts in a way that appears significantly more advanced than the typical chatbots seen on web pages. These advances could potentially boost Microsoft’s efforts in web search, allowing it to better compete with Google-parent Alphabet (GOOG , GOOGL).

Google has since made its AI chatbot, Bard, available for public use in a piloted fashion, opening Bard up to a limited number of waitlisted users in the U.S. and U.K. Meanwhile, in the public relations battle, some analysts believe Microsoft has surpassed Google. The war is far from over. However, Microsoft’s bold AI bet generated quite the market response. Whether to improve an existing product or service, or just to gain a competitive edge, several companies have recently touted their own AI initiatives and machine learning ventures.

Management at these companies recognize the risk becoming obsolete if they aren't investing in AI products and services. However, this is where investors need to be careful not to latch on to poor-performing companies that are aiming to capitalize on the recent surge in AI interest. Beyond the buzzwords, investors should look extensively under the hood to identify companies that have AI and automation as a central part of their businesses.

In that vein, Nvidia (NVDA) and Adobe (ADBE) are names to keep an eye on. Nvidia recently held its GTC conference, and touted its AI hardware push, emphasizing ways to democratize AI, while streamlining the development of generative AI applications like ChatGPT. Nvidia CEO Jensen Huang wasted little time in saying, "The iPhone moment of AI has arrived" in reference to the attention generative AI and, OpenAI's, ChatGPT, in particular, has received of late.

Adobe, meanwhile, held its 2023 Summit in Las Vegas. While the digital publishing and marketing tech giant is not new to AI, the company unveiled a slate of new products and services aimed at the AI market, including Firefly AI, a new set of "creative generative AI models" that involve image generation and text effects.

All told, this new AI frontier is getting crowded. It remains to be seen which companies ascend to the top of the AI leaderboard and which ones falter. There will be those that adopt the AI buzzword in their marketing material but never generate enough operating momentum to thrive. But while AI has tons of room for growth, investor due diligence (or intelligence) becomes even more critical.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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