Unlike other tech-based trends in recent times like the Metaverse or Blockchain technology, AI seems to showthe most promise for real-world applications. In fact, it might not even be appropriate to call AI a trend. It’s been used by Ukraine to (successfully) target Russian forces in the ongoing Russian invasion and in Tesla’s self-driving software. Companies like Netflix use it in its recommendation algorithm, while others like China’s Meituuses it to retouch and enhance photos.
Here are three AI-linked stocks that we have our eyes on:
1. Microsoft (MSFT)
OpenAI, the company that’s responsible for ChatGPT, might not be publicly-traded, but its major investor Microsoft is. The tech giant has poured $10 billion into OpenAI on a $29 billion valuation – on top of the $1 billion it put in in 2019 and another $2 billion in 2021, reportedly putting Microsoft’s stake at 75%.
ChatGPT amassed hundreds of millions of active users within 2 months since its launch, and Microsoft plans to integrate it into the Microsoft products across the board, including the Bing search engine, its Office suite, Azure cloud services, and Teams programs. This may completely change Microsoft’s business model.
For one, Microsoft is trying to use a ChatGPT-supported Bing to catch up to, or muscle Google off its throne. Google dominates the search engine market, taking over 92% of the market share between 2022-2023. In comparison, Microsoft’s Bing took 3% of this share. Google, meanwhile, has suffered a leak of an internal memo indicating that the tech giant is “behind” in the AI arms race.
AI looks like it will be a cornerstone of the company, with CEO Satya Nadella saying that the wave of AI will be“unstoppable” and driving the next era of computing. This means that beyond Chat GPT, Microsoft’s capital andtalents will lean heavily to AI.
Should you invest in Microsoft?
With central bank tightening and rampaging inflation, the era of easy money has ended. Barring macro conditions though, Microsoft’s commitment to building its AI capabilities cannot be ignored – especially in an industry that’s projected to hit US$ 1,597.1 billion by 2030 with a registered CAGR of 38.1%.
Should Microsoft’s AI be successful, its capabilities can be integrated into its full suite of services. Azure AI already touts “responsible”, “mission-critical solutions”, while its Business Intelligence sector can benefit from AI-assisted analytics. That said, MSFT does not have value going for it, with a 33 P/E TTM ratio, against GOOG’s 23 as of 5 May.
2. Nvidia (NVDA)
Nvidia is a leading technology company that specializes in designing and producing high-performance chips. AI chips are designed to perform the complex computations required for artificial intelligence tasks, whichrequire significant computing power.
Statistics show that the demand scale of the entire artificial intelligence industry in 2022 is about 387.45 billion US dollars, and it is expected to grow rapidly at a compound annual growth rate of 20%. By 2029, this is estimated to reach 1.39 trillion US dollars.
Should you invest in Nvidia?
The data center business is expected to be a significant growth driver for Nvidia. The demand for data center GPUs by cloud service providers and supercomputer operators like Microsoft and Oracle is growing rapidly.
According to some estimates, sales of data center GPUs could hit $30 billion by 2025 compared to $3 billion in 2018. Nvidia has launched its first data center CPU, the Nvidia Grace CPU superchip, which is more advanced than Intel's 10-nanometer chip.
From the perspective of revenue structure, the data business of Nvidia's artificial intelligence direction has accounted for more than 60%, which is its largest business and the company's most important growth engine.
Despite a heavy decline in 2022, NVDA’s gross margin in the fourth quarter (which ended in January 2023) recovered to 63%, and net income more than doubled from the previous quarter to $1.4 billion, which is equivalent to 23% of revenue.
In other words, as Nvidia's revenue recovers in the next year, profits will return too, rebounding from minimal net income at times last year. Shares currently trade at a P/E ratio of around 158 – this premium price tag is likely to result in volatility.
3. Amazon
Amazon has become the world's largest ecommerce player in large part due to its innovative use of artificial intelligence and machine learning. The company has used AI to improve the efficiency of its operations and services. As an early adopter of AI, Amazon has demonstrated its ability to leverage customer-centric innovation to drive growth and maintain its dominant position in the marketplace.
Alexa, the AI-powered virtual assistant, has become a ubiquitous presence in millions of households worldwide. Moreover, Amazon Web has made investments in artificial intelligence and machine learning services. AI components in the business include Amazon Web Services, image and video analysis service Amazon Rekognition and a stake in EV company Rivian.
Should you invest in Amazon?
Amazon is expected to have a prosperous future in the long run. Despite a slowdown in online spending in 2022, the e-commerce market still has significant potential for growth. Last year, online sales made up 19.7% of all worldwide retail sales, with that figure expected to hit 24% in 2026.
According to Grand View Research, the e-commerce market is forecast to have a compound annual growth rate (CAGR) of 14.7% until 2027. With Amazon's leading market share of 37.8% in the U.S. e-commerce market, the company is in a strong position to generate significant profits in the future.
In addition, Amazon has a lucrative position in cloud computing with Amazon Web Services (AWS). GrandView Research claims that the cloud computing market was worth $483.98 billion in 2022, and it expects it to grow at a CAGR of 14.1% through 2030.
In fact, the company already sees significant gains from the cloud market. Despite declines in its e-commerce earnings in 2022, AWS' $22.8 billion in operating income, a year-over-year rise of 23%, kept the company growing amid macroeconomic headwinds.
Although Amazon shares are down 36% year over year, they have risen by 14% since January 1st. With considerable market share in two high-growth markets, it may be worth considering purchasing its shares while they are experiencing a dip.
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