The burgeoning interest in artificial intelligence from investors is palpable. Numerous companies are now promoting their AI products and strategies. Identifying genuine AI stocks that already generate significant revenue from generative AI, such as Microsoft (MSFT) and Nvidia (NVDA), presents a real challenge for investors. For various firms, including Google’s parent company Alphabet (GOOGL), the advent of generative AI brings both risks and potential rewards.
AI Stocks and Apple’s Response
The Nasdaq composite saw a 43% rise in 2023, spurred by the buzz around generative AI and startups like OpenAI. Apple (AAPL) reached a $3 trillion market valuation in 2023 despite not having an immediate response to ChatGPT. This might change by 2024. Daniel Ives, an analyst at Wedbush, speculates, “By late 2024, we expect Apple to roll out an AI App Store developed by its developers, which will be crucial in monetizing Apple’s robust installed base,” as he shared with IBD.
Generative AI: The New AI Paradigm
The leading AI stocks span a range of sectors, including semiconductor manufacturers, software firms, cloud service providers, and large tech companies that utilize AI in various applications. AI technology relies on sophisticated computer algorithms designed to emulate human learning, pattern recognition, and predictive abilities.
AI Stocks to Monitor by Sector
- Nvidia (NVDA): A leader in the Elec-Semiconductor Fabless industry, with cloud computing giants purchasing more chips for AI model training and workloads.
- CrowdStrike (CRWD): In the Computer Software-Security sector, AI chatbots are anticipated to automate more functions in security centers, reducing response times to cyber threats.
- Arista Networks (ANET): Known for its Computer-Networking solutions, this company provides network switches essential for “hyperscale” data centers. As AI expands, internet data centers will demand increased network bandwidth.
- Microsoft (MSFT): A major player in Computer Software-Desktop, Microsoft is the leading investor in OpenAI, requiring Azure cloud services for ChatGPT users. Its business AI assistant, Office 365 Copilot, will be widely available from November 1.
- Salesforce (CRM): In the Computer Software-Enterprise realm, Salesforce plans to integrate conversational AI assistants across all its apps, utilizing a mix of subscription and consumption-based pricing models.
- Amazon.com (AMZN): Under Retail-Internet, Amazon’s Alexa lags in chatbot technology. However, its cloud unit collaborates with OpenAI competitors like Anthropic.
Artificial Intelligence Stocks in the Wake of OpenAI
Microsoft, as the primary investor in OpenAI, has garnered significant attention. The recent leadership crisis at OpenAI, where Sam Altman was temporarily ousted as CEO, highlighted Microsoft’s influence. This upheaval could provide Amazon.com and Google an opportunity to attract corporate clients. Cloud giants Amazon, Microsoft, and Google are selling AI services to businesses. The need for massive computing power to identify patterns and make inferences from large data sets means a race to develop AI chips for data centers, autonomous vehicles, robotics, smartphones, drones, and other gadgets.
Foundation Models: The Bedrock of Artificial Intelligence
A critical question for investors is whether existing tech giants or new AI startups will dominate generative AI. Large language models (LLMs) serve as a foundation for application development, enabling AI systems to understand human language. Companies with vast data reserves have an advantage here. OpenAI leads a group of LLM startups including AI21 Labs and Cohere. OpenAI is expected to generate over $1 billion in revenue shortly. However, it faces competition from open-source LLMs.
Amazon’s AI Initiatives
Meta Platforms (formerly Facebook) has unveiled a generative AI chatbot strategy for consumers and AI tools for advertisers on its social media platform. During its recent re:Invent cloud event, Amazon introduced Amazon Q, an AI assistant for enterprises, currently in preview.
Software Companies and AI Monetization
The global expenditure on gen AI solutions is projected to exceed $40 billion in 2024, says International Data Corp. This includes software, hardware, and business/IT services. The market is expected to reach $151 billion by 2027, growing annually at an average rate of 86%.
Regulatory Considerations for AI
Tougher regulations for AI are on the horizon. President Biden’s executive order on AI development and the European Union’s Artificial Intelligence Act call for more transparency and ethical use of AI technologies.
AI Stocks Across Various Industries
Venture capital continues to flow into AI startups, with significant funding rounds for companies like Inflection AI, Adept, and Hugging Face. AI’s application extends to facial and voice recognition, medical diagnostics, algorithmic trading, and automated customer-service bots. Tech giants are expanding their AI initiatives, with Amazon integrating ChatGPT-style search into its online store and Meta investing in a new AI supercomputer.
Conclusion
AI stocks are at the forefront of technological innovation, spanning chipmakers, software firms, and tech giants. As AI continues to “eat the world,” companies are vying for a competitive edge in this rapidly evolving landscape.