In this article, we will be taking a look at 12 stocks that will benefit from AI.

Market Slowdown In August

August has been off to a slow start for most stocks. On August 8, the S&P 500 healthcare sector was the only sector in the green, while 10 remaining sectors were all down – even tech. Healthcare was up by 6.08 basis points or 0.38%, while tech was down by 41.45 basis points or 1.36%. While some observers are seeing this slow market activity as a sign that the bull market many were welcoming did not even start, others believe the only reasons behind the downward trend in stocks this month are high valuations and summer seasonal issues.

At a time like this, most investors would be tempted to hold off on the buying spree and wait for stocks to settle down before they swoop in. However, buying up stellar stocks, most notably artificial intelligence-related or technology stocks, right now when they seem to be down may be a strategy worth considering. Companies that have been working tirelessly to keep up with their competitors in the artificial intelligence arms race are in the red today, but there’s no telling how long they’ll stay there. For instance, Alibaba Group Holding Limited (NYSE:BABA), Baidu, Inc. (NASDAQ:BIDU), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) are three stocks that were down by 3.34%, 2.54%, and 0.41%, respectively, on August 8. These are companies that have been contributing to the artificial intelligence space this year, whether in the realm of generative AI or the provision of essential AI-related semiconductor chips, among more. Despite this, they are taking a beating alongside many other tech and AI stocks that analysts and investors are bullish on to this day.

Considering the way artificial intelligence has revolutionized the tech industry and the world, in general, this year, particularly with the advent of ChatGPT and other generative AI products, it’s far too soon to write off the companies that are working in this space. It’s likely that companies working with AI this year will profit immensely in the near future, which will ensure that their shareholders will profit just as much when the time to reap the benefits of their hard work finally rolls around. Considering this, we have compiled a list of such top stocks that will benefit from AI this year. They include some of the best AI stocks to buy now alongside other tech stocks that are introducing new AI products and services as part of their suite of products.

Our Methodology

We have selected companies that have been actively investing and innovating in the AI space this year and have mentioned their specific contributions to the sector below. The companies are ranked based on the number of hedge funds holding stakes in them, from the lowest to the highest number of hedge fund investors. We used Insider Monkey’s hedge fund data for the first quarter to rank them.

Stocks That Will Benefit From AI

12. C3.ai, Inc. (NYSE:AI)

Number of Hedge Fund Holders: 24

C3.ai, Inc. (NYSE:AI) is an application software company offering a platform that enables customers to design, develop, and deploy enterprise AI applications. It is based in Redwood City, California. As a pure-play AI company in the market, it is likely to benefit immensely from the AI boom.

As of July 24, Joe Goodwin, an analyst at JMP Securities, maintains an Outperform rating on shares of C3.ai, Inc. (NYSE:AI). He also raised the firm’s price target on the stock from $38 to $40.

At the end of the first quarter, 24 hedge funds held stakes in C3.ai, Inc. (NYSE:AI), with a total stake value of $151.9 million.

In its March 2023 investor letter, Kerrisdale Capital said the following about C3.ai, Inc. (NYSE:AI):

“We are short shares of C3.ai, Inc. (NYSE:AI), a $4 billion market capitalization enterprise software company that has risen from the ashes of its busted IPO based on the misconception that its self-proclaimed “AI leadership” somehow positions it to benefit from Silicon Valley’s current tech theme du jour: generative AI as represented by media obsession ChatGPT. We believe these speculative flames won’t burn bright much longer, as the realities of C3’s poor customer traction, failing sales partnerships, and financial pressures will catalyze what is likely to be a painful reality check.

This isn’t the first time C3 has sought to ride a hot investment theme. The company was originally founded as C3 Energy to develop analytics solutions for public utilities preparing for the emergence of cap-and-trade and smart grids. C3 pivoted in 2016, renaming the company C3 IoT to capitalize on that buzzy opportunity. But management’s master stroke was rebranding operations as C3.ai in 2019 and going public with the “AI” stock ticker, thus securing its place as the default artificial intelligence stock play for the undiscriminating investor despite the bulk of its business coming from relatively dated analytics models built for a very small number of utility, energy, and government customers. C3 is a minor, cash-burning consulting and services business masquerading as a software company, and its true value is a fraction of its current market capitalization…” (Click here to read the full text)

11. Baidu, Inc. (NASDAQ:BIDU)

Number of Hedge Fund Holders: 43

Broad Peak Investment Holdings was the most prominent shareholder in Baidu, Inc. (NASDAQ:BIDU) at the end of the first quarter, holding 425,000 shares in the company.

A Buy rating was reiterated on shares of Baidu, Inc. (NASDAQ:BIDU) on July 17 by analyst Lincoln Kong at Goldman Sachs. The analyst also raised the price target on the stock from $183 to $197.

Baidu, Inc. (NASDAQ:BIDU) is a communication services company based in Beijing, China. The company was the first big Chinese company to release a generative AI product, the Ernie Bot, as competition for ChatGPT.

We saw 43 hedge funds holding stakes in Baidu, Inc. (NASDAQ:BIDU) in the first quarter. Their total stake value in the company was $2.1 billion.

Tweedy, Browne said the following about Baidu, Inc. (NASDAQ:BIDU) in its first-quarter 2023 investor letter:

“Many, if not most, stocks held in the Funds’ portfolios performed quite well in the first quarter. This was particularly true for the Funds’ non-US equity holdings, many of which have come into their own over the last two quarters, despite years of underperformance versus their US counterparts – a welcome shift given that our Funds’ portfolios have been somewhat non-US-centric in terms of their portfolio allocations for well over a decade. The Funds also received a long overdue boost from their Chinese and Hong Kong-based holdings in the wake of China’s reopening and the government’s signaling of a relaxation of their interventionist policies. This included strong returns in Baidu, Inc. (NASDAQ:BIDU) among others.”

10. Micron Technology Inc. (NASDAQ:MU)

Chris Caso, an analyst at Wolfe Research, initiated coverage on Micron Technology Inc. (NASDAQ:MU) shares with an Outperform rating on July 20. The analyst also announced an $80 price target on the stock.

Micron Technology Inc. (NASDAQ:MU) is a semiconductor company based in Boise, Idaho. The company is one of three companies making DRAM and NAND flash memory chips, which are vital for artificial intelligence systems today.

There were 73 hedge funds long Micron Technology Inc. (NASDAQ:MU) in the first quarter. Their total stake value in the company was $2.7 billion.

Like Alibaba Group Holding Limited (NYSE:BABA), Baidu, Inc. (NASDAQ:BIDU), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), Micron Technology Inc. (NASDAQ:MU) is a stock that has much to gain from the AI boom this year.

9. Palo Alto Networks, Inc. (NYSE:PANW)

Number of Hedge Fund Holders: 87

Palo Alto Networks, Inc. (NYSE:PANW) was spotted in the 13F holdings of 87 hedge funds in the first quarter, with a total stake value of $3.9 billion.

Palo Alto Networks, Inc. (NYSE:PANW) is a systems software company providing cybersecurity solutions globally. It is based in Santa Clara, California. The company has been working on a proprietary AI model to be used for specific security use cases and is likely to benefit from the popularity of AI as it attempts to introduce this technology in its cybersecurity operations.

An Outperform rating was maintained on shares of Palo Alto Networks, Inc. (NYSE:PANW) by Matthew Hedberg, an analyst at RBC Capital, on August 7. The analyst also placed a price target of $250 on the stock.

Like Alibaba Group Holding Limited (NYSE:BABA), Baidu, Inc. (NASDAQ:BIDU), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), Palo Alto Networks, Inc. (NYSE:PANW) is a highly popular stock that can offer great returns with its AI operations.

8. Adobe Inc. (NASDAQ:ADBE)

Number of Hedge Fund Holders: 99

Adobe Inc. (NASDAQ:ADBE) is an application software company based in San Jose, California. It is offering a family of generative AI products on its creative products under the name of Adobe Firefly.

Our hedge fund data for the first quarter shows 99 hedge funds long Adobe Inc. (NASDAQ:ADBE). Their total stake value in the company was $7.3 billion.

Morgan Stanley analyst Keith Weiss upgraded shares of Adobe Inc. (NASDAQ:ADBE) from Equal Weight to Overweight on July 31. The analyst also raised his price target on the stock from $510 to $660.

Bailard Inc was the largest shareholder in Adobe Inc. (NASDAQ:ADBE) at the end of the first quarter, holding 47,068 shares in the company.

Polen Capital mentioned Adobe Inc. (NASDAQ:ADBE) in its second-quarter 2023 investor letter:

“On a relative basis, based on total attribution, the top performers in the quarter were Amazon, Netflix, and Adobe Inc. (NASDAQ:ADBE). Adobe has had several cross-currents this year with slightly slower revenue growth, the announcement of a sizeable potential acquisition of Figma, and the introduction of generative AI functionality into many of its products. These issues seem to be a net positive, although we are cautious about the company’s ability to achieve regulatory approval for the Figma acquisition. Generative AI also poses some potential competitive challenges for Adobe, which we will describe in more detail later.”

7. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)

Number of Hedge Fund Holders: 102

Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was seen in the portfolios of 102 hedge funds in the first quarter, with a total stake value of $8.9 billion.

Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is another semiconductor company on our list. It is based in Hsinchu City, Taiwan. The company is expected to benefit from a rising demand for its chips amid the generative AI boom.

Charles Shi, an analyst at Needham, maintains a Buy rating on shares of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) as of July 21. The analyst also placed a price target of $115 on the stock.

6. Alibaba Group Holding Limited (NYSE:BABA)

Number of Hedge Fund Holders: 128

Holding about 1.9 million shares in the company, Segantii Capital was the most prominent shareholder in Alibaba Group Holding Limited (NYSE:BABA) at the end of the first quarter.

An Outperform rating was reiterated on shares of Alibaba Group Holding Limited (NYSE:BABA) on July 17 by Colin Sebastian, an analyst at Baird. The analyst also maintained a price target of $115 on the stock.

Alibaba Group Holding Limited (NYSE:BABA) is a company providing tech infrastructure and marketing reach to help merchants, brands, retailers, and more in engaging with their customers. The company is based in Hangzhou, China. It has also launched its own generative AI tool, Tongyi Wanxiang, to stay in the AI race.

In the first quarter, 128 hedge funds were long Alibaba Group Holding Limited (NYSE:BABA). Their total stake value in the company was $5.9 billion.

5. Apple Inc. (NASDAQ:AAPL)

Number of Hedge Fund Holders: 131

Apple Inc. (NASDAQ:AAPL) is an information technology company based in Cupertino, California. The company is currently testing a generative AI chatbot and is hinting at a significant AI-related announcement in 2024.

A Buy rating and a $205 price target are held on Apple Inc. (NASDAQ:AAPL) shares by Michael Walkley at Canaccord Genuity as of August 4.

Apple Inc. (NASDAQ:AAPL) had 131 hedge funds long its stock in the first quarter, with a total stake value of $165.2 billion.

Choice Equities Capital Management mentioned Apple Inc. (NASDAQ:AAPL) in its second-quarter 2023 investor letter:

“Dramatic valuation differences across market cap sizes continue. This has been the case for some time now. Perhaps I have spent too much time discussing these dichotomies, as generally, I feel like if we pick the right stocks and manage market exposures thoughtfully, our equities- oriented portfolio will prosper across various market cycles. However, when markets become as lopsided as they have lately, I feel additional discussion on the market environment is worthwhile, if only to help highlight the opportunities that are available and the likely path forward. I expect future discussions to soon be focused again on our moderately concentrated portfolio. But for now, let’s take one last in-depth look at how far reaching these valuation dichotomies have again become.(Please note: charts that accompany the following can be found in the Appendix.)

Take Apple Inc. (NASDAQ:AAPL) for example. It is the largest stock by market cap, and fairly considered one of the best companies in the world. The company has been extraordinarily successful and improved standards of living everywhere in the process with their ubiquitous products. Along the way, shareholders have been richly rewarded, with shares increasing nearly fourteen-fold over the last ten years while generating an annualized total shareholder return of 31%, including dividends.

On the back of another big quarter for large cap tech, it is now the first stock to surpass the $3T market cap threshold. This makes its weighting in the ~$37T market cap of the S&P 500, ~8%. It also means this one stock’s market cap is larger than that of the entire ~$2.98T market cap of the Russell 2000 index, the first time in history a single stock has outweighed the Russell 2000 – aside from two brief days in September 2020 when Apple’s market cap then accomplished the same…” (Click here to read the full text)

4. NVIDIA Corporation (NASDAQ:NVDA)

Number of Hedge Fund Holders: 132

NVIDIA Corporation (NASDAQ:NVDA) was seen in the portfolios of 132 hedge funds in the first quarter, with a total stake value of $12.3 billion.

NVIDIA Corporation (NASDAQ:NVDA) is the first semiconductor company that comes to mind when discussing AI because of its GPU AI chips, which are essential in AI development today. It is based in Santa Clara, California.

Mizuho’s Vijay Rakesh maintains a Buy rating and a $530 price target on NVIDIA Corporation (NASDAQ:NVDA) shares as of July 24.

This is what Aristotle Atlantic Partners said about NVIDIA Corporation (NASDAQ:NVDA) in its second-quarter 2023 investor letter:

“Nvidia contributed to outperformance, as the company benefits from increased demand for its Graphic Processing Unit (GPU) semiconductor systems used in accelerated computing that is used to power Artificial Intelligence (AI) and Large Language Models (LLM). The company reported strong first fiscal quarter 2024 results and issued guidance for the second quarter and fiscal year 2024 that was ahead of consensus due to continuing strong demand trends for its data center GPU systems. “

3. Alphabet Inc. (NASDAQ:GOOG)

Number of Hedge Fund Holders: 155

Alphabet Inc. (NASDAQ:GOOG) is a big tech company based in Mountain View, California. It is among the tech companies leading the AI race, having released its own chatbot, Bard, and leading a dedicated AI division for research in the area.

We saw 155 hedge funds long Alphabet Inc. (NASDAQ:GOOG) in the first quarter. Their total stake value was $18.6 billion.

John Blackledge at TD Cowen holds an Outperform rating and a $140 price target on Alphabet Inc. (NASDAQ:GOOG) shares as of July 13.

Ensemble Capital Management said the following about Alphabet Inc. (NASDAQ:GOOG) in its second-quarter 2023 investor letter:

“Alphabet Inc. (NASDAQ:GOOG) (+15.4%): After persistent worries earlier in the year about the impact of AI, Google rode a tailwind of AI enthusiasm in the quarter as indications emerged that Google Search had not lost any market share despite a revamped Bing search engine powered by ChatGPT.

Anyone who has been paying attention to the news this year has heard about ChatGPT and the seemingly overnight explosion of interest in artificial intelligence. But like many seemingly overnight successes, AI has been decades in the making.

For instance, the so called Turing Test, long thought of as the test of a machine’s ability to exhibit human level intelligence, was introduced nearly 75 years ago in 1950. It has been 25 years, a quarter of a century, since IBM’s Deep Blue computer beat the human world chess champion Garry Kasparov. And it has been over seven years since Sundar Pichai became the CEO of Google and announced in his first speech that Google was now an A.I.-first company…” (Click here to read the full text)

2. Amazon.com, Inc. (NASDAQ:AMZN)

Number of Hedge Fund Holders: 243

Barclays’ Ross Sandler holds an Overweight rating and a $180 price target on Amazon.com, Inc. (NASDAQ:AMZN) as of August 7.

A total of 243 hedge funds were long Amazon.com, Inc. (NASDAQ:AMZN) in the first quarter, with a total stake value of $25.8 billion.

Amazon.com, Inc. (NASDAQ:AMZN) is another big tech company with a lot at stake in the AI space. It offers AI services and products through its Amazon Web Services business, and it is also working on its own AI chips.

This is what The Ithaka Group said about Amazon.com, Inc. (NASDAQ:AMZN) in its second-quarter 2023 investor letter:

“Founded in 1994, Amazon.com, Inc. (NASDAQ:AMZN) has evolved from its early roots as an online bookstore to become one of the world’s largest eCommerce retailers. At the end of 2022 Amazon stood poised to capture ~40% of all US e-commerce sales, representing five times more share than the next closest competitor. In addition to eCommerce, Amazon Web Services (“AWS”) has become the market leader in outsourced cloud infrastructure. Further, Amazon Advertising is garnering significant share in digital advertising, particularly product placement ads, thanks to consumers beginning their product searches on Amazon’s site. Despite providing tepid forward guidance on its 1Q23 earnings call, Amazon’s stock appreciated on the back of increased confidence the company would be able to contain expenses and push operating margins above prior peaks in the near-to medium term.”

1. Microsoft Corporation (NASDAQ:MSFT)

Number of Hedge Fund Holders: 289

Our hedge fund data shows 289 funds long Microsoft Corporation (NASDAQ:MSFT) in the first quarter. Their total stake value was $57.9 billion.

A Buy rating and a $433 price target were held on Microsoft Corporation (NASDAQ:MSFT) shares on August 2 by Ivan Feinseth at Tigress Financial.

Microsoft Corporation (NASDAQ:MSFT) is also set to benefit from AI’s popularity because of its efforts to bring Bing AI to its users alongside other AI products and services.

Here’s what L1 Capital said about Microsoft Corporation (NASDAQ:MSFT) in its second-quarter 2023 investor letter:

“Microsoft Corporation (NASDAQ:MSFT) is a clear and substantial beneficiary of AI – not only through its investment in OpenAI/ChatGPT but through the incorporation of AI into core Microsoft products and services, and increasingly through Azure (Microsoft’s cloud computing business) providing ‘AI-as-a-service’. At this stage we don’t know what the long-term financial benefits of AI will be to Microsoft, but we have confidence that it will be meaningful, that barriers to competition are increasing and that Microsoft is worth more today than it was 12 months ago. That said, Microsoft’s share price has increased 33% (in U.S. dollars) over the past year, and we no longer consider the company to be undervalued in our central base case. We have started to trim our investment in Microsoft, although it remains one of the Fund’s largest positions.”

See also 20 Best AI Chrome Extensions for 2023 and 10 Best Semiconductor Stocks To Buy For The AI Boom.

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Disclosure: None. 12 Stocks That Will Benefit From AI is originally published on Insider Monkey.