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 a projected $327.5 billion this year to over $500 billion by 2024. 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 few years, the following three stocks have all more than doubled the market. And all three are coming off very strong years in 2020, despite some early-year wobbles as Wall Street came to grips with the global COVID-19 fallout and tech stocks as a group have retreated from their highs.
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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 rose by double-digits every year for a decade before dipping -5.8% in its most recent (2021) fiscal year, thanks to COVID; however, that was clearly a blip – revenues are expected to bounce back this year, with 13.6% growth expected. The company is not yet profitable, though that’s expected to change in the coming years.
As for the stock, SPLK has risen by double digits in each of the last four years, though the 2020 return (11.7%) was more modest. The stock has been in a sharp downtrend for more than six months since topping out at 223 last fall, twice dipping as low as 111 in the last month. I’d wait to see some sustained strength before getting in on this one, but the long-term trajectory is still up.
Artificial Intelligence Stock #2: Tencent Holdings (TCEHY)
Chinese stocks have been out of favor in recent years, 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 35% in the last year. Trading at 76, it’s down from all-time highs around 99 in February, but back above its 200-day moving average and appearing to build a nice-looking base in the last two months.
Artificial Intelligence Stock #3: Twilio (TWLO)
Here’s what Mike Cintolo, our resident growth investing expert, wrote about Twilio a few months ago:
“While it hasn’t seemed like it recently, Twilio remains a rare bird, with a very bullish longer-term forecast (one analyst estimated that revenue can grow at in the mid-30% range annually through 2023). Plus, to its credit, the company is using much of the money it’s been raising to good ends; Twilio confirmed it’s invested ‘up to’ $750 million in Syniverse, which will not only help its offerings for business-to-consumer messaging, but could also prove to be a fruitful investment, too.”
In the past year, TWLO stock is up 59%, despite a big drop-off since February. It appears to be getting its act together, but I’d wait until the stock pokes its head above the 200-day moving average again before buying.
In the meantime, it’s worth considering adding these three top AI stocks to your portfolio, especially Tencent Holdings, which appears to be in the midst of a more meaningful rebound. 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.
Do you own any artificial intelligence stocks not listed above?
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.