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3 Under-the-Radar Artificial Intelligence Stocks to Capitalize on a Red-Hot Sector

Artificial intelligence is red-hot, and artificial intelligence stocks are benefitting. But you know the big names. Here are three lesser-known AI stocks with enormous potential.

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Artificial intelligence (AI) is one of the fastest-growing markets in the world, with global revenues zooming from $150.2 billion last year to an estimated $1.34 trillion by 2030. And artificial intelligence stocks became all the rage in 2023, helping jump-start the new bull market that surfaced last spring and early summer and reached a rolling boil by November.

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), the latter of which was up a whopping 239% in 2023! Don’t get me wrong—those are all fine companies and have been great investments (to varying degrees), especially last year. But they’re not pure artificial intelligence stocks, per se; in other words, they’re large and diversified enough companies and AI is just one segment—albeit a fast-growing one—of what they do.

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The purer artificial intelligence plays are less diversified and highly levered to the AI boom. And given the recent uptick in AI development and integration (sparked a little over a year ago when OpenAI introduced ChatGPT) it’s certainly something that warrants exploring.

As the global AI boom gains steam in the coming years, these artificial intelligence stocks (or AI stocks, for short) should continue to outperform. Best of all, they’re flying under the radar compared to some of their mega-cap peers, and therefore can still be had at a discount right now even after their recent surge.

3 Artificial Intelligence Stocks to Buy

Artificial Intelligence Stock #1: ServiceNow (NOW)

If you don’t own shares of NVDA and thus haven’t benefitted from its relentless rally this year, perhaps you can capture Nvidia-like growth by investing in the smaller, lesser-known company that recently partnered with Nvidia. Granted, ServiceNow isn’t exactly a minnow – it’s a $146 billion market cap software company that’s been in business for two decades. But it’s about to get much bigger, thanks to its new deal with Nvidia to develop generative AI for corporations – namely their IT departments, customer service branches and human resources.

ServiceNow’s Nvidia deal is just its latest – and biggest – AI-centric deal. The company also acquired G2K, an AI player that connects real-time, in-store data across storefronts; launched an AI-powered employee talent system that should help firms tailor skills management to their workforce’s needs and strengths; there’s also been a tie-in with Microsoft Azure OpenAI service.

While it’s hard to quantify, Wall Street’s hopes are high that these and future new AI-related offerings will add some juice to an already-strong growth story.

NOW stock has plenty of momentum, up 72% in the last year to reach new all-time highs. But the run may not be over: The company is tracking toward 50% earnings growth and 23% revenue growth in 2023, and another 21% growth on both the top and bottom lines this year. And yet, the stock just barely eked past 2021 highs in the last month.

Given the growth, there’s room for more upside ahead.

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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 fairly well. And now China has finally reopened for business.

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 down slightly from the March 2020 pandemic lows.

But the worst appears to be over for this stock, as it bottomed at 25 in October 2022 (it currently trades at 35, down from 41 last month). With earnings expected to improve 17% this year and the stock trading at a dirt-cheap 13 times forward earnings, you could get it at a steep bargain here or wait for the bleeding to stop on its current pullback. Either way, TCEHY looks like it’s worth a nibble as a value play.

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Artificial Intelligence Stock #3: GitLab, Inc. (GTLB)

In a digital economy, the quality and stability of an organization’s source code is everything. No application exists without it. And having a platform that permits near-instantaneous changes can mean success or failure for users who rely on that application.

That’s what GitLab provides. The company’s end-to-end DevOps platform functions as a system of record for source code.

The buzz on the Street is that analysts are becoming more confident that GitLab can gain share in this specialized area of the market. And yes, it does have exposure to AI as well.

The company has already integrated AI into the platform and has been using it for years. AI is currently used in nine offerings, including Suggested Reviewers and Code Suggestions.

The technology is used to generate code, summarize various code management processes (reviewers, issue comments, merge requests, etc.) generate tests, explain code and in GitLab chat, to name a few.

More solutions with AI are currently in beta mode, including ModelOps, a feature to the company’s main DefSecOps platform that will help with code writing suggestions. Estimated cost will be $9 per month.

And GitLab is working on its own proprietary models using Google Vertex AI. Central to this strategy is the idea of protecting code and providing privacy tools.

With just over 7,000 customers and over 1 million paying users, AI capabilities can be significant in both new customer acquisition and retention.

While the company is not yet profitable, that’s about to change: Analysts expect earnings per share of 13 cents this year, with 35.4% revenue growth. As for the stock, it’s up 36.8% in the last year but trades at less than half its 2021, post-IPO highs. Just down from 52-week highs, this looks like an ideal entry point.

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It’s worth considering adding these three top AI stocks to your portfolio, especially ServiceNow, which appears to be in the midst of a more meaningful rebound. Bigger picture, the AI trend has been a boon for these stocks and could be even better in the coming years as the global AI marketplace becomes increasingly mainstream, and the global economy recovers.

Do you own any artificial intelligence stocks not listed above?

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Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week.