A lengthy piece from Investor's Business Daily, February 14:
Amid surging investor interest in artificial intelligence, many companies suddenly tout AI product roadmaps. But finding legit AI stocks that already garner revenue from generative AI, like Microsoft (MSFT) and Nvidia (NVDA), is a challenging endeavor for investors. For many companies — such as Google parent Alphabet (GOOGL) — the rise of generative AI poses both risk and opportunity.
Amid the emergence of generative AI, it's a good time to be cautious amid the hype. In general, look for AI stocks that use artificial intelligence to improve products or gain a strategic edge.
Microsoft is the biggest investor in startup OpenAI, the leader in gen AI training models. Cloud computing giants Amazon.com (AMZN), Microsoft and Google sell AI services to business customers.
The Nasdaq composite jumped 43% in 2023, boosted by buzz around AI stocks.
The top artificial intelligence stocks to buy span chipmakers, software companies, cloud-computing service providers and technology giants that utilize AI tools in many applications.
So far, the biggest demand for AI chips has come from cloud computing giants. Nvidia earnings have boomed amid demand for AI chips built into computer servers.
But analysts expect a market for "edge AI" — on-device processing of AI apps to emerge. While "training" AI models is now the biggest market for chipmakers like Nvidia, the market will shift to "inferencing," or running AI applications, in the long run.
Qualcomm (QCOM) aims to build Snapdragon AI chips for Android smartphones and the "internet of things." ARM Holdings (ARM) is another AI chip maker.
AI Stocks: How Will Apple Fire Back?
However, most enterprise software makers will not monetize gen AI in a material way until late 2024 or 2025, analysts say.Meanwhile, Apple (AAPL) topped the $3 trillion market valuation mark in 2023 despite having no immediate answer to ChatGPT. That could change in 2024. Some analysts look for an AI upgrade for the IOS mobile operating system.
Also, AI technology uses computer algorithms. The software programs aim to mimic the human ability to learn, interpret patterns and make predictions.
Until recently, machine learning was largely limited to models that processed data to make predictions. The AI models focused on pattern recognition from existing data. Corporate spending on AI projects was modest as companies mulled return on investment.
Now many companies are scrambling to launch generative AI pilot programs. But investors want AI stocks to show progress in boosting revenue as exploratory projects translate into tangible demand.
AI Stocks To Watch By Industry Group
Company Symbol Comp Rating Industry name AI angle Nvidia (NVDA) 99 Elec-Semiconductor Fabless Cloud computing giants buying more chips to train AI models or run AI workloads. Big lead over rival Advanced Micro Devices (AMD). CrowdStrike (CRWD) 99 Computer Software-Security AI chatbots expected to automate more functions in security-operations centers and reduce the time to detect computer hacking. Arista Networks (ANET) 98 Computer-Networking Sells computer network switches that speed up communications among racks of computer servers packed into "hyperscale" data centers. With AI growth, internet data centers will need more network bandwidth. Microsoft (MSFT) 97 Computer Software-Desktop Biggest investor in generative AI startup Open AI, whose ChatGPT users require Azure cloud services. Microsoft's business AI assistant, Office 365 Copilot, will have general availability on Nov. 1. Salesforce (CRM) 99 Computer Software-Enterprise Integrating conversational AI assistants within the user interfaces of all Salesforce apps. Expected to use a mix of subscription and consumption-based pricing. Amazon.com (AMZN) 98 Retail-Internet Alexa smart assistant lags in chatbot technology. Cloud computing unit working with OpenAI rivals Anthropic, Hugging Face and Falcon 40B. New generative AI models process "prompts," such as internet search queries, that describe what a user wants to get. Generative AI technologies create text, images, video and computer programming code on their own.
Companies will aim to boost productivity by developing customized AI for specific industries. Proprietary company data will be used to train AI models.
AI systems require massive computing power to find patterns and make inferences from large quantities of data. So the race is on to build AI chips for data centers, self-driving cars, robotics, smartphones, drones and other devices.
Foundation Models Boost Artificial Intelligence
One key question for investors is whether tech industry incumbents will be the big generative AI winners. Or, will a new wave of AI startups eventually dominate?Large language models provide the building blocks to develop applications. LLMs help AI systems understand the way that humans write and speak. Also, LLMs require training data for specific tasks. Companies with access to troves of data hold an edge.
OpenAI is part of a wave of LLM startups that includes AI21 Labs, Anthropic and Cohere. OpenAI reportedly is on track to generate more than $1 billion in revenue over the next year.
However, OpenAI's dominance faces a challenge from open-source LLMs.
Meta Platforms (META) and IBM (IBM) on Dec. 5 joined with 40 other companies and organizations to form the AI Alliance – an industry group that will support open-source AI models versus proprietary systems from OpenAI, Google and others. Members of the AI Alliance include Intel (INTC), Advanced Micro Devices (AMD) and Oracle (ORCL).
For example, Hugging Face is an open-source community that offers tools to enable users to build LLMs. Hugging Face recently raised $235 million in a Series D funding round. Investors included Google, Amazon, Nvidia, Intel, Qualcomm, IBM and Salesforce....
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