In this article, we will take a look at the 10 most promising AI stocks.
By now you are probably tired of constantly hearing and reading about the AI mania in the news. But if you are into investing and want to make money off of AI, you are in for a long, probably never-ending news cycle of AI since companies are just getting started in AI innovation and the coming years and decades will be full of opportunities and novel achievements by AI algorithms. A lot has been said about ChatGPT, chatbots, Microsoft’s integration of AI tools and Google’s AI plans. Let’s talk some numbers that quantify the real effects of the latest AI breakthroughs.
Still a Nascent Market
A report by Brookings titled “The Geography of AI” quotes estimates from PricewaterhouseCoopers, which say AI contribution to GDP in North America could reach a whopping $3.7 trillion by 2030.
The report shares several stats which show that the AI market, despite its dramatic growth, is still nascent. For example, the report cites stats from startup data platform Crunchbase, which show that despite the rapid advancement and numerous launches of AI companies over the past decade, AI startups account for just about 5% of new technology firms each year in the U.S.
The report also takes a look at the AI-related jobs posted on different jobs platforms. Here’s what the Brookings report says on this front:
According to data from Burning Glass Technologies, an analytics software company, AI job postings as a share of all job postings quadruped in the past decade. However, those job additions still account for a tiny fraction in the U.S. labor market. In 2019, there were about 160,000 AI job postings in the United States, which was less than 10% of the 2 million total IT job postings, and only 0.7% of all job postings. Despite the excitement around accelerated AI adoption since the COVID-19 pandemic disrupted the business world, both the total number of AI jobs and the share of AI job postings experienced a slight decline in 2020.
“The Next Big Thing is Here, And Everywhere”
T. Rowe Price published a report on AI back in 2017 which looks prescient in hindsight. The report foresaw what was coming an accurately pointed out the AI advances coming in the domains of natural language and training data. Here’s what the report, titled AI: The Next Big Thing is Here, And Everywhere, said:
Robots and automated devices will not be taking over the world anytime soon, but computer systems are being trained to analyze more like humans—but with greater speed and accuracy. They are programmed to handle such complex tasks as understanding natural language, visual perception, and speech and text recognition and translation.
What the report didn’t foresee was who will take a lead in the AI race in the future. The report at the time mentioned the obvious names who were expected to gain market share in the AI industry. These included Alphabet Inc Class A (NASDAQ:GOOGL), Microsoft, Tesla, Facebook and Alibaba. The report specifically highlighted the advantage Alphabet Inc Class A (NASDAQ:GOOGL) had in the market. Quoting Josh Spencer, portfolio manager of Global Technology Equity Strategy, the report said:
“Artificial intelligence will further advantage the massive players given a scarce talent pool and the importance of high-scale computing capacity and large proprietary data sets. It’s a matter of the strong getting stronger. AI is not typically the main reason we invest in these successful companies, but it’s becoming more important. AI is maybe 10% of the investment case at Google now, but it’s a very important 10%.”
But who could have thought that a company named OpenAI would releases a tool five years down the road that would instantly threaten Alphabet Inc Class A (NASDAQ:GOOGL) core business model and force it to rethink its priorities, along with jolting major behemoths like Facebook.
Photo by Ruben Sukatendel on Unsplash
Methodology
For this article we first listed down at least 30 companies that are working in the AI industry, providing AI-related software or hardware solutions or are investing resources in R&D related to AI. We then narrowed down our list to 10 companies whose analyst price targets are much higher than the current stock prices. The idea was to find promising AI stocks whose stock prices are poised to grow according to Wall Street analysts. The list is ranked in ascending order of the number of hedge fund investors, which was taken from Insider Monkey’s database of 943 hedge funds.
Most Promising AI Stocks According to Analysts
10. Predictive Oncology Inc. (NASDAQ:POAI)
Number of Hedge Fund Holders: 2
Predictive Oncology Inc. (NASDAQ:POAI) uses AI-driven models for cancer treatment development. In March, Predictive Oncology Inc. (NASDAQ:POAI) posted results for the year ended December 31, 2022.
Revenue in the period increased by about 6.3% year over year to total $1.51 million.
As of the end of the last quarter of 2022, 2 hedge funds had stakes in Predictive Oncology Inc. (NASDAQ:POAI). Ken Griffin’s Citadel Investment Group owns a $27 million stake in Predictive Oncology Inc. (NASDAQ:POAI).
9. Amesite Inc. (NASDAQ:AMST)
Number of Hedge Fund Holders: 2
Amesite Inc. (NASDAQ:AMST) uses AI to develop learning programs. Amesite Inc. (NASDAQ:AMST) has gained over 60% over the past 30 days through April 20. Most of the gains were courtesy of Amesite Inc. (NASDAQ:AMST)’s launch of its new learning platform that is enabled by GPT-4. The new platform provides the company’s customers with AI-assisted learning features.
As of April 20 Amesite Inc. (NASDAQ:AMST) was trading at around $4.1. According to CNN Business, one analyst is covering the stock with a $40 price target, which shows a huge upside potential from the current levels.
As of the end of the fourth quarter of 2022, 2 hedge funds had stakes in Amesite Inc. (NASDAQ:AMST).
8. Baidu, Inc. (NASDAQ:BIDU)
Number of Hedge Fund Holders: 40
Chinese internet search giant Baidu, Inc. (NASDAQ:BIDU) has been using AI in search, self-driving technologies and other platforms it operates for a long time. But Baidu, Inc. (NASDAQ:BIDU) earlier this year rose after it was reported that the company was working on a ChatGPT-like service, called Ernie bot, and plans to integrate it with its platforms.
However, Baidu, Inc. (NASDAQ:BIDU) took a hit last month after the company cancelled its planned event to demo the Ernie bot. Nonetheless it remains one of the most promising AI stocks according to analysts.
7. Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Holders: 99
Adobe Inc. (NASDAQ:ADBE) is rolling out a plethora of tools and features to integrate AI with its product suite. These include Generation AI, Adobe Firefly, new AI features for Adobe Lightroom and Adobe Sensei, the company’s AI and ML technology that operates across the Adobe platform, including Adobe Experience Cloud, Creative Cloud and Document Cloud.
As of the end of the fourth quarter of 2022, 99 hedge funds had stakes in Adobe Inc. (NASDAQ:ADBE). The total value of these stakes was $8.4 billion. The biggest stakeholder of the company is Terry Smith’s Fundsmith LLP which owns a $710 million stake in Adobe Inc. (NASDAQ:ADBE).
Polen Focus Growth Strategy made the following comment about Adobe Inc. (NASDAQ:ADBE) in its Q1 2023 investor letter:
“One area we are watching regarding Alphabet and Adobe Inc. (NASDAQ:ADBE) is AI systems and their capabilities, including generative AI. Interestingly, both Adobe and Alphabet could see benefits or threats from the emergence of generative AI and large language models (LLMs). Both companies already use generative AI to the benefit of their users in anticipating how content creators edit their work (Adobe) and in how search results are anticipated and generated (Google). At the same time, breakthrough technologies like AI can open the door to additional competition and/or impact a company’s profitability levels. We now see AI systems others are developing, including LLMs and generative AI offerings, that could be more competitive in the future. While we think it remains early days for ChatGPT and the capabilities of these types of LLMs and generative AI programs like DALL-E, the technology seems to be progressing at a fast rate and will at least require a strong response from incumbents.
As of now, we believe Alphabet and Adobe are leaders in their own right in these areas and have a clear path to improving their existing offerings with AI advancements, which would allow them to be net beneficiaries of AI. There are also significant barriers to building leading AI offerings in these areas. As a result, our position sizes in Adobe and Alphabet remain sizeable. For Adobe, the status of its pending $20 billion-plus Figma acquisition is also uncertain. There is a good chance, in our view, that it will be blocked by regulators, which would mean the future opportunity to expand its offerings to the developer community (beyond designers) may not occur.”
6. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 113
Alibaba Group Holding Limited (NYSE:BABA) earlier this month jumped in the AI arena by announcing the launch of Tongyi Qianwen, its large language model, as an app accessible to a wider audience. Alibaba Group Holding Limited (NYSE:BABA) said Tongyi Qianwen will be integrated with all business applications across Alibaba’s ecosystem. Alibaba Group Holding Limited (NYSE:BABA)’s Cloud platform already offers several tools and services to develop AI applications.
As of the end of the fourth quarter of 2022, 113 hedge funds tracked by Insider Monkey had stakes in Alibaba Group Holding Limited (NYSE:BABA), up from 105 hedge funds in the previous quarter. The biggest stakeholder of Alibaba Group Holding Limited (NYSE:BABA) is Philippe Laffont’s Coatue Management which owns a $441 million stake in the company.
L1 Long Short Fund made the following comment about Alibaba Group Holding Limited (NYSE:BABA) in its Q1 2023 investor letter:
“Alibaba Group Holding Limited (NYSE:BABA) (Long +16%) shares performed strongly based on favourable sentiment surrounding China’s re-opening and indications from Chinese authorities that the prolonged restructuring process of Alibaba/Ant Financial was finally drawing to a close. The company remains a high-quality business with leading positions in both eCommerce and Public Cloud. We exited our position in January at around US$116 per share with the shares having rallied more than 90% since their early November lows and our China re-opening catalyst having played out. We subsequently re-entered the position in March with the shares having pulled back and with the company announcing a new organisational and governance structure. Alibaba has announced plans to split into six major business groups – Cloud Intelligence, Taobao Tmall, Local Services, Global Digital, Cainiao Smart Logistics and Digital Media and Entertainment Group. Each of these groups will be managed independently (separate CEO and board) and have the flexibility to raise external capital and potentially pursue separate IPOs. We believe this announcement is a strong catalyst to unlock the inherent sum-of-the-parts valuation discount in the company.”
5. Salesforce, Inc. (NYSE:CRM)
Number of Hedge Fund Holders: 117
Salesforce, Inc. (NYSE:CRM) offers various AI features in its Cloud platforms. Salesforce, Inc. (NYSE:CRM) recently launched Einstein GPT, which it says is the world’s first generative AI CRM technology.
As of the end of the fourth quarter of 2022, 117 hedge funds had stakes in Salesforce, Inc. (NYSE:CRM). The biggest hedge fund stakeholder of Salesforce, Inc. (NYSE:CRM) is Harris Associates which owns an over $1 billion stake in the company.
OpenAI recently rolled out support for Salesforce, Inc. (NYSE:CRM)’s Slack.
Polen Focus Growth Strategy made the following comment about Salesforce, Inc. (NYSE:CRM) in its Q1 2023 investor letter:
“Salesforce, Inc. (NYSE:CRM) shares increased over 50% in the quarter, despite the slowing macroeconomy, putting some pressure on the company’s revenue growth in the short term. We believe the strong share price performance was due to resilient revenue growth, despite the tough selling environment in recent quarters, and management’s actions to improve governance structures and streamline operations, including reducing headcount and overall operating expenses as a percentage of sales on a go-forward basis.
While we have long admired Salesforce’s market leading enterprise software across several cloud offerings, we have also believed that the company’s cost structure was bloated. We applaud management’s decision to become a more streamlined and profitable business without sacrificing product development efforts, especially as we also continue to expect healthy revenue growth over the coming five years. The investment case for companies that have solid revenue growth along with disciplined expense management and strong capital allocation can often be, in our experience, a strong combination. And, if it also happens to include accelerating revenue growth and a highly attractive valuation, it can provide for unusually strong shareholder returns. We believe Amazon (see later below) and other companies in the Portfolio are similarly positioned.”
4. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 194
The tech industry’s dramatic pivot to AI is already forcing Meta Platforms, Inc. (NASDAQ:META) to have second thoughts about its strategy of becoming a metaverse-first company. Mark Zuckerberg was quick to announce several AI projects at Meta Platforms, Inc. (NASDAQ:META). Meta Platforms, Inc. (NASDAQ:META) announced its owned large language model, called LLaMA, (for Large Language Meta AI).
Mark Zuckerberg in an internal message also announced the formation of a dedicated team focused on generative AI to “turbocharge” its efforts in the area. Zuckerberg said Meta Platforms, Inc. (NASDAQ:META)’s long-term goal is to develop “AI personas that can help people in a variety of ways.”
A total of 194 hedge funds tracked by Insider Monkey were bullish on Meta Platforms, Inc. (NASDAQ:META) as of the end of the fourth quarter o 2022.
Giverny Capital made the following comment about Meta Platforms, Inc. (NASDAQ:META) in its Q1 2023 investor letter:
“Meta Platforms, Inc. (NASDAQ:META) was our leading performer, up 76% for the quarter. I have written quite a bit about Meta in prior letters and I feel like I got the basics right: Meta never had an earnings or engagement problem so much as an expense management problem. Once founder and CEO Mark Zuckerberg announced layoffs and a new commitment to efficiency, the stock doubled in a few months.”
3. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 209
Alphabet Inc. (NASDAQ:GOOGL) is clearly under pressure on several fronts. On the one hand MSFT is outflanking Alphabet Inc. (NASDAQ:GOOGL) by taking a lead in the AI race by partnering with OpenAI. On the other hand reports are suggesting that Samsung might replace Google search engine with Bing as the default search engine in its mobile device. But the reality is that Alphabet Inc. (NASDAQ:GOOGL) remains a giant in the AI space and is working on several long-term projects that will prove their worth.
A latest report by Financial Times says Alphabet Inc. (NASDAQ:GOOGL) is starting to roll out AI features for advertisers. Alphabet Inc. (NASDAQ:GOOGL) is also reportedly working on a foldable phone to take on Samsung.
A total of 209 hedge funds tracked by Insider Monkey had stakes in Alphabet Inc. (NASDAQ:GOOGL) as of the end of the fourth quarter of 2022.
Polen Focus Growth Strategy made the following comment about Alphabet Inc. (NASDAQ:GOOG) in its Q1 2023 investor letter:
“One area we are watching regarding Alphabet Inc. (NASDAQ:GOOG) and Adobe is AI systems and their capabilities, including generative AI. Interestingly, both Adobe and Alphabet could see benefits or threats from the emergence of generative AI and large language models (LLMs). Both companies already use generative AI to the benefit of their users in anticipating how content creators edit their work (Adobe) and in how search results are anticipated and generated (Google). At the same time, breakthrough technologies like AI can open the door to additional competition and/or impact a company’s profitability levels. We now see AI systems others are developing, including LLMs and generative AI offerings, that could be more competitive in the future. While we think it remains early days for ChatGPT and the capabilities of these types of LLMs and generative AI programs like DALL-E, the technology seems to be progressing at a fast rate and will at least require a strong response from incumbents.
As of now, we believe Alphabet and Adobe are leaders in their own right in these areas and have a clear path to improving their existing offerings with AI advancements, which would allow them to be net beneficiaries of AI. There are also significant barriers to building leading AI offerings in these areas. As a result, our position sizes in Adobe and Alphabet remain sizeable. For Adobe, the status of its pending $20 billion-plus Figma acquisition is also uncertain. There is a good chance, in our view, that it will be blocked by regulators, which would mean the future opportunity to expand its offerings to the developer community (beyond designers) may not occur.”
2. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 240
Amazon.com, Inc. (NASDAQ:AMZN) recently launched Bedrock, an AWS service that will allow companies to build generative AI applications. Amazon.com, Inc. (NASDAQ:AMZN)’s Cloud platform is already widely used by companies to develop AI and machine learning applications.
In a letter to shareholders, Amazon.com, Inc. (NASDAQ:AMZN)’s CEO Andy Jassy earlier this month explained at length the AI offerings of AWS and concluded the letter by saying:
“I could write an entire letter on LLMs and Generative AI as I think they will be that transformative, but I’ll leave that for a future letter. Let’s just say that LLMs and Generative AI are going to be a big deal for customers, our shareholders, and Amazon.”
A total of 240 hedge funds tracked by Insider Monkey were bullish on Amazon.com, Inc. (NASDAQ:AMZN) at the end of the fourth quarter of 2022. The net worth of these hedge fund stakes was about $28 billion. The biggest hedge fund stakeholder of Amazon.com, Inc. (NASDAQ:AMZN) was Natixis Global Asset Management’s Harris Associates which owns a $1.6 billion stake in the company.
Polen Global Growth Strategy made the following comment about Amazon.com, Inc. (NASDAQ:AMZN) in its Q1 2023 investor letter:
“We raised our position in Amazon.com, Inc. (NASDAQ:AMZN). During 2022, Amazon’s business experienced revenue deceleration from pre-pandemic levels combined with higher expenses resulting from inflation pressures as well as costs in their fulfillment segment. The fulfillment costs were set in motion during the pandemic when demand overwhelmed their network. More recently, AWS – along with Azure and GCP – experienced a deceleration in growth as customers globally feel pressure to optimize their usage in this tough macroeconomic environment. We don’t expect this deceleration to persist for the long-term given the secular trend of companies transitioning to the cloud.
For long-term investors, we believe this combination provides an opportunity and that Amazon is now poised to re-accelerate revenue growth, of which we are already seeing signs, while expanding margins and free cash flow. With respect to margins, given the fast growth in AWS and advertising, the latter generating almost $40 Billion in sales and growing at greater than 30% recently, the resulting mix-shift could result in operating margins of 10% or higher over time. This level would represent a 5x increase over 2022 levels. In sum, we are capitalizing on what we believe is arguably one of the most competitively advantaged business in the world, which is growing well, poised to accelerate that growth and expand margins, and is trading at an attractive price.”
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 259
Microsoft Corporation (NASDAQ:MSFT) is a no-brainer AI stock at this point, given the company’s rapid implementation of AI plans and its long-term vision for integrating AI in its key products like search, productivity and enterprise apps.
Recently, Morgan Stanley analyst Keith Weiss said that Microsoft Corporation (NASDAQ:MSFT) is “best positioned to gain market share” among major tech companies that are pushing into AI and Cloud. The analyst has a $307 price target on Microsoft Corporation (NASDAQ:MSFT).
Hedge funds agree with the market sentiment. As of the end of the fourth quarter of 2022, Microsoft Corporation (NASDAQ:MSFT) was the most popular stock among the 943 hedge funds tracked by Insider Monkey. Microsoft Corporation (NASDAQ:MSFT) beats giants like Alphabet, Apple and Meta Platforms when it comes to hedge fund sentiment.
Polen Global Growth Strategy made the following comment about Microsoft Corporation (NASDAQ:MSFT) in its Q1 2023 investor letter:
“Microsoft Corporation (NASDAQ:MSFT)’s fundamentals have largely stayed intact despite the headwinds many technology companies are facing due to the macroeconomic environment. While growth has decelerated below our longer-term target (we expect low-double-digit revenue growth over the next 3-5 years), we believe the deceleration should prove to be ephemeral. Azure and Office Commercial remain bright spots, while Windows OEM has been and will continue to be a drag over the next few quarters. With respect to Azure, even at a decelerated rate, the business continues to grow well. After eight consecutive quarters of Azure’s top line growth being in the mid-to-high-40s range, over the last two quarters, growth has been 42% and 38%, respectively. Microsoft is a scaled business with multiple and interlocking competitive advantages, and we believe the company will compound at high rates for a long period of time.”
You can also take a peek at 10 Most Profitable Small Businesses in 2023 and 10 Best April Dividend Stocks To Buy.
Suggested articles:
- 12 Best WallStreetBets Stocks To Buy Now
- Top 15 Shipbuilding Countries in the World
- 12 Best Dow Stocks to Buy Now
Disclosure: None. 10 Most Promising AI Stocks is originally published on Insider Monkey.
