Artificial intelligence (AI) is a rapidly advancing technology that has garnered the attention of investors worldwide. With its potential to revolutionise multiple industries, AI presents an attractive opportunity for those looking to grow their investment portfolios. In this article, we will dive into the world of AI stocks and share insights from several Fools who have identified their favourite picks for investing in this exciting field.
(Editor’s note: you might have correctly guessed that the above paragraph was mostly written using AI. What follows, however, are our contractors’ own words!)
Kainos
What it does: Kainos is a software company based in Belfast providing digital technology solutions and workday deployments.
By Matthew Dumigan. The UK stock market is home to a handful of companies that look poised to cash in on the AI revolution, but my top pick at the moment is Kainos (LSE:KNOS).
The company’s aim is to help organisations increase the efficiency of their operations, which it does by leveraging a range of AI-driven techniques such as machine learning, natural language processing and knowledge mining.
Kainos has now delivered AI solutions to hundreds of global customers, citing its excellent customer service as a key driver of customer satisfaction and retention, which has subsequently underpinned revenue growth.
However, the tech company comes with a high price-to-earnings (P/E) ratio of around 30, which adds risk since it means the stock is relatively expensive at its present valuation.
Despite this, I’m confident the company can continue to deliver transformation programmes to new and existing clients across a range of sectors amid a backdrop of sustained market demand. For me, this justifies an elevated P/E ratio.
Matthew Dumigan does not own shares in Kainos.
Microsoft
What it does: Microsoft develops and licenses consumer and enterprise software.
By Harvey Jones: Artificial intelligence is the most thrilling investment theme of 2023 with stocks like chip maker Nvidia and AI developer C3.ai tripling in value, but that makes me nervous.
While I recognise that AI and machine learning will change our world, I think we’re coming to the end of the early-stage excitement and it’s all looking a bit frothy.
So I hate to be boring and say my preferred way to invest in AI is via tech old-timer Microsoft (NASDAQ:MSFT)
Except it’s not boring.
Microsoft’s natural language processing chatbot ChatGPT is now the fastest-growing app ever, according to UBS. I’ve tried it and agree with Elon Musk’s verdict that it’s “scary good”.
There are no doubt a host of start-ups doing brilliant things, but at some point they will have to hook up with a tech titan to achieve size and scale, and Microsoft will be waiting for them.
I’m happy to see that its share price hasn’t doubled this year. So far, it’s up a relatively modest 35% at the time of writing. Over one year, it’s up 20%.
Microsoft has defensive strength, as well as growth potential. I should have bought the stock years ago. AI has given me a new reason to do so.
I have a couple of concerns, though. First, after the recent AI frenzy, the sector (and Microsoft shares) may slip back. Second, if the US dips into recession as some fear, that may hit the US dollar and the value of my holding (and its dividends) in real terms. I’m keen to buy Microsoft but I’d rather do it following a market dip.
.Harvey Jones has no position in Microsoft, Nvidia or C3 ai.
Microsoft
What it does: Microsoft is a technology company that produces software including Windows and Microsoft Office as well as hardware such as Xbox.
By Christopher Ruane. When the internet came along in a big way, doomsayers reckoned that Microsoft (NASDAQ: MSFT) would struggle to stay relevant.
In fact, the commercially savvy company figured out over time how to turn the internet from a threat to an opportunity. I think it will do the same with AI.
Its large, profitable base business gives it financial firepower startup AI rivals lack. A large skilled workforce and commercial experience can help Microsoft turn a technology into a multibillion dollar business. Many smaller rivals would struggle to do that no matter how strong their grasp of AI is.
The firm has had problems with regulators before and there is a risk they could slow it growing its AI offering too fast. But I think the company is one of the very few that combine technological prowess with proven commercial nous on the right scale to bring AI to the mass market.
Christopher Ruane does not own shares in Microsoft.
Nvidia
What it does: Nvidia is a developer of high-powered accelerated computing hardware.
By Edward Sheldon, CFA. It’s hard to look past Nvidia (NASDAQ:NVDA) when it comes to AI stocks, to my mind. The way I see it, this company is powering the artificial intelligence revolution.
The thing to understand about AI is that it requires an immense amount of computing power. It can’t be done properly with old-school computer chips. Instead, it needs ‘accelerated computing’ hardware. This is where Nvidia comes in. It offers high-powered computing products designed specifically for AI applications.
Today, Nvidia’s chips are used by nearly all of the major players in the artificial intelligence industry including Google, Microsoft, Meta Platforms, and ChatGPT creator OpenAI. Currently, it has a market share of around 80%. This means that the stock is essentially a great ‘picks-and-shovels’ play on the growth story. No matter who wins the AI race, Nvidia should do well.
It’s worth pointing out that this is a higher-risk stock. Historically, it has been very volatile. I’m comfortable with the volatility here, however, as I’m invested for the long term.
Edward Sheldon owns shares in Nvidia and Microsoft
UiPath
What it does: Romanian-founded, US-listed UiPath specialises in robotic process automation software.
By Dr James Fox. I’m a little concerned investors will be taking their profits after AI stocks soared in recent weeks. That’s why I’m looking at an overlooked AI stock – one that didn’t experience the Nvidia-powered surge.
That’s why my top pick is UiPath (NYSE:PATH). The company creates software robots that help businesses automate manual tasks, notably providing the tech to automate routine office activities and enhance productivity.
It recently rolled out an Open AI connector, allowing businesses to tap into programmes like ChatGPT, Amazon’s machine-learning platform Sagemaker, and Clipboard AI for automated form filling and data mining.
Naturally, these features nicely compliment UiPath’s core business offering – productivity gains.
There’s certainly a risk that if the AI bubble – if it is a bubble – bursts, it could drag UiPath shares down. But I believe the long-term future for this stock is bright. It’s also much cheaper than AI-leaders Nvidia and C3 ai, trading at nine times sales.
Dr James Fox does not own shares in UiPath, Nvidia, Amazon or C3 ai.
