You Already Know the Names of the Biggest AI Stocks. These 3 Have Superior Growth Potential.
Artificial intelligence (AI) is one of the fastest-growing markets in the world, with global revenues zooming from $9.5 billion in 2018 to an estimated $118.6 billion by 2025. Given that exploding growth, it makes sense to invest in artificial intelligence stocks.
But you can’t just invest in the usual suspects. Those include the likes of Alphabet (GOOG), Microsoft (MSFT), IBM (IBM), Salesforce.com (CRM) and Nvidia (NVDA). Don’t get me wrong—those are all fine companies and some are solid investments (to varying degrees). But they’re not artificial intelligence stocks, per se; in other words, they’re large and diversified enough companies that AI is just one segment—albeit a fast-growing one—of what they do.
The purer artificial intelligence plays are less diversified, and highly levered to the AI boom. As the artificial intelligence industry has exploded in the last couple years, the following three stocks have all more than doubled the market. And all three are coming off very strong years in 2019, despite some early 2020 wobbles as Wall Street comes to grip with the global COVID-19 fallout.
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Still, the artificial intelligence industry is less impacted by the pandemic than most. And as the global AI boom gains steam in the coming years, these artificial intelligence stocks (or AI stocks, for short) should continue to outperform.
3 Artificial Intelligence Stocks to Buy
Artificial Intelligence Stock #1: Splunk (SPLK)
Splunk specializes in something called “machine learning”—a form of artificial intelligence. Specifically, Splunk provides artificial intelligence for information technology (IT) operations, enabling organizations to reduce costs by automating normal IT functions (without having to hire an entire IT department).
Splunk’s sales have risen double-digits every year in the last decade, are expected to dip to 3.5% growth in the current (2021) fiscal year, but bounce back with a vengeance in a (hopefully post-pandemic) fiscal year 2022, with 25.7% growth expected. The company is not yet profitable, though that’s expected to change in the coming years.
As for the stock, SPLK is up roughly 30% year to date, versus a -5.7% drop-off in the S&P 500, and has been in almost a constant uptrend since early April.
That’s an encouraging trend, and one that looks particularly buyable now that shares are starting to form a new leg up after building a base for the last month.
Artificial Intelligence Stock #2: Tencent Holdings (TCEHY)
Chinese stocks have been out of favor for more than a year, dragged down first by the trade war and then when the coronavirus outbreak began in China. But Tencent Holdings stock has held up well.
China’s biggest social media company—inventors of the WeChat app—Tencent recently built an artificial intelligence lab in Seattle, with the intent of expanding its voice-to-text and virtual assistant offerings. TCEHY stock, meanwhile, is up more than 30% this year, going totally against the grain of most stocks. Trading at 62, it’s just down from all-time highs above 64, and comfortably above its 50- and 200-day moving averages.
Artificial Intelligence Stock #3: Twilio (TWLO)
Here’s what Mike Cintolo, our resident growth investing expert, wrote about Twilio last month:
“Twilio was one of the leaders coming out of the 2018 market crash and we rode it to solid gains last year before it went into a tailspin in August. Yet the company’s story has always been pristine: It has the leading communications platform for businesses of all sizes (it has 190,000 customers, up 23% from a year ago), allowing them to easily and automatically be in touch with and alert employees, vendors, customers and suppliers in a variety of ways (messaging, email, etc.). Revenues are mostly usage-based, too, so as customers further integrate the platform into their daily operations, Twilio’s top line grows (its same-customer growth rate was a whopping 35% in Q1). Growth has been rapid for a while, though big investments have kept a lid on earnings, but now the market is looking ahead and seeing great things; after sales and earnings crushed expectations last month (management also significantly boosted Q2 guidance), the stock gapped all the way back to new highs. The virus shut-in has helped business more than it’s hurt (firms like Uber and AirBnB are obviously seeing less usage, but others have more than made up the slack), but this is more than a virus play: Twilio’s platform has massive potential as firms large and small (we even use it for alerts on our various options services) automate communications.”
As for TWLO stock, it topped out around 150 last July before a massive retreat took it all the way down to 91 in November, and the coronavirus crash knocked back to 71 in mid-March. Since then, however, the stock has recovered incredibly well, rising to 211 as of this writing, down from 221 last week. For the year, TWLO is up a whopping 114%. The trend is quite clear, making TWLO stock worth buying on dips like the current one.
In the meantime, it’s worth considering adding these three top AI stocks to your portfolio, especially now that all three are in a big uptrend. Bigger picture, the AI trend has been a boon for these stocks the last couple years, and could be even better in the coming years as the global AI marketplace becomes increasingly mainstream, and the global economy recovers from the current virus crisis.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!
Note: This post has been updated from an original version, published in 2019.