Discovering the best AI stocks has become a fascinating journey amid the boom of artificial intelligence (AI). As the buzz around this revolutionary technology intensifies, we find ourselves consuming content written by ChatGPT, marvelling at art generated by Midjourney, and cackling at films created by Dall-E.
If you haven’t watched the Harry Potter/Balenciaga video, you are missing out! 😉
Investment in AI technology has increased by more than 10x in the last decade. In 2022 alone, around $189.6 billion in new money was injected into this space.
Businesses have been adopting AI and incorporating it into their operations more than ever before. The past 5 years alone have seen adoption rates nearly double. Businesses have also doubled the number of AI capabilities they use, including natural language processors and robotic process automation.
With AI being all the rage these days, it’s only natural to consider investing in this booming space. Here are some of the best AI stocks and ETFs you might want to consider.
The Major Players
Retail investors have multiple AI-related options to choose from. And while there are several companies exclusively dedicated to propelling the AI space forward, some of the best AI stock opportunities come from large companies leveraging this technology to supplement their own distinct offerings. Examples include Google, Amazon, and IBM.
So, let’s start with these enterprises and conglomerates before looking at smaller AI-specific players.
1. Microsoft (MSFT)
| Price as of writing | $335.40 |
| P/E | 36.3 |
| Dividend Yield | 0.79% |
When ChatGPT was first released to the public back in November 2022, it caused quite a buzz. It acquired around 100 million monthly active users only two months after its initial launch. In fact, everybody loved the product so much that OpenAI, the company behind ChatGPT, quickly announced that for a monthly $20 subscription, you could get access to better service and new features.
OpenAI is a private company, but its main investor is Microsoft. The software giant has pumped more than $10 billion into OpenAI and its products. So, in a manner of speaking, purchasing Microsoft stock allows you to indirectly invest in OpenAI and its products, ChatGPT and Dall-E 2. That is why Microsoft is placed at the top of the list of best AI stocks to invest in.
Microsoft has a clear vision of where AI should be going. For starters, the company believes that AI should be accessible to everybody on the planet, and it is using its cloud computing platform, Azure, to make that future a reality. Microsoft also wants to use AI technology to power its search engine, Bing. Microsoft is also exploring ways AI can supplement different fields. For instance, it is exploring the possibility of helping workers in the healthcare industry by automating clinical documentation.
2. Alphabet (GOOGL)
| Price as of writing | $124.17 |
| P/E | 27.6 |
| Dividend Yield | 0% |
Obviously, Google and its parent company, Alphabet, have no intention of ceding the search market to Microsoft and Bing. Alphabet recently announced plans to release Bard, an AI chatbot that is supposed to rival ChatGPT. The plan is to integrate Bard into Google’s search functions, making the never-ending quest for information online easier and smoother.
However, for Google, Bard is only the tip of the iceberg.
Google uses artificial intelligence in almost every element of its business. The tech company relies on AI to price its ads, promote content, and filter spam from Gmail inboxes.
Alphabet’s subsidiary, DeepMind Technologies, is not only devoted exclusively to advancing artificial intelligence but is also behind some of the biggest newsworthy headlines. That is why Alphabet is considered one of the best AI stocks to invest in.
3. Amazon (AMZN)
| Price as of writing | $124.25 |
| P/E | 303.05 |
| Dividend Yield | 0.16% |
Even though Amazon is famous for being the biggest online retailer in the world, the true heart of its success comes from its inventive use of technology. To see this in action, look at how Amazon leverages AI technology:
- Just as Microsft offers AI and ML solutions through Azure, Amazon offers very similar solutions through Amazon Web Services, or AWS for short.
- Amazon also leverages the power of AI when generating product recommendations for those visiting its online e-commerce store.
- On top of all of this, Alexa, Amazon’s virtual assistant, is powered by AI. And Alexa is in everything Amazon sells, from Amazon tablets to their Echo devices.
All that being said, Amazon is still thinking of new ways it can use AI technology. For one thing, the company wants machine vision and other AI tech to run its Amazon Go cashier-less grocery stores. Amazon wants drone delivery to be an integral part of its logistics, and AI is integral to that.
4. IBM (IBM)
| Price as of writing | $132.42 |
| P/E | 65.9 |
| Dividend Yield | 5.01% |
IBM has been at the forefront of technology ever since it was founded in 1911, finding new ways to improve human intelligence, boost efficiency, and minimize operational costs.
Today, with AI taking over the world, IBM still retains its position at the head of the pack, making it one of the best AI stocks of the moment. According to the market research firm IDC, IBM is the market leader when it comes to AI software platforms, as its market share in 2020 was estimated to be around 13.7%.
This leadership position can be traced back to when IBM first introduced the world to Watson.
Today, thanks to its Watson products, IBM offers numerous AI solutions:
- It sells AI applications that both cut costs and improve customer service. And some of these applications can also be used to make predictions or automate workflows.
- Additionally, IBM enables its enterprise customers to create their own proprietary AI solutions with the help of the Watson Studio.
- IBM is also focusing on specific sectors. For instance, the healthcare sector uses AI technology to enable companies to offer patients individualized care plans, to bring new drugs to market faster, and to take the quality of care to a whole new level.
None of this is to mention the many AI acquisitions IBM has made over the years. The tech giant has bought Turbonomic, Databand.ai, and Instana, to name a few companies.
5. Nvidia (NVDA)
| Price as of writing | $391.71 |
| P/E | 204.38 |
| Dividend Yield | 0.041% |
Nvidia is well-known for its world-class computer chips and graphics cards. Its graphics cards power countless data centers, enabling machine learning algorithms to harness and leverage gargantuan mountains of data. What makes these cards so suitable is that training a machine-learning model requires plenty of computing power, which only a solid graphics card could provide.
Aside from fueling data centers with state-of-the-art chips, Nvidia also supports the development of self-driving cars. The tech company provides the necessary chips for these cars to navigate the streets on their own and also contributes to the software.
Nvidia has a running partnership with Oracle. Oracle leverages Nvidia’s AI solutions, both the hardware and the software, to power its Oracle Cloud Infrastructure, enabling it to compete with Amazon’s AWS.
Nvidia has multiple different lines of AI solutions. For example, Nvidia’s DGX cloud platform makes AI supercomputing possible. The Grace Hopper products facilitate the handling and processing of enormous sets of AI data.
The Up-and-Coming Competitors
Although the above-mentioned companies are all making great strides in the field of AI, they are also well-established entities with decades-worth of financial success. As a result, they can offer you some exposure to the gains brought on by this technology while still providing you with some degree of safety.
If you are looking for high-growth stocks that provide more potential upside and more direct exposure to AI, then you should look at smaller companies specifically focused on the sector. However, with this larger upside comes more risk, and you need to be prepared to shoulder that as well. This means that you need to stomach the volatility and the losses.
Many of the following companies are in the red, i.e., they are losing money rather than making it. The reason is that for many tech companies, the strategy is to sacrifice today’s profit for quick growth and a solid foothold in the market. Even if the company does make a profit, the stock will likely not provide any dividends as the company will prefer to reinvest all of its profits back into its operations and fuel its growth.
Let’s explore some best AI stock candidates you might want to take a look at.
6. C3.ai (AI)
| Price as of writing | $33.95 |
| P/E | -13.9 |
| Dividend Yield | 0.0% |
C3.ai is one of the few companies focused solely on AI. It is a software-as-a-service company, or SaaS for short, that enables other companies to develop and deploy their own AI applications.
C3.ai has helped numerous entities develop their software solutions quickly and at a relatively low cost. As a case in point, the company enables the U.S. Air Force to better predict if an aircraft system will fail if spare parts can be found and identified and if there are new ways to increase mission capability. C3.ai also enables, Engie, the European utility company, to go over energy consumption and find ways to lessen energy expenditures.
The company is also releasing its own AI products, including an AI generative suite that includes enterprise search. The enterprise search will enable large conglomerates to find and retrieve important information from their information systems with the help of a natural language processing model.
Part of the reason this stock made its way to our list of best AI stocks is its unique strategic position: Aside from C3.ai, there are very few, if any, AI development platforms serving enterprise clients and offering them an end-to-end solution.
7. Sprinklr, Inc. (CXM)
| Price as of writing | $13.49 |
| P/E | -38.5 |
| Dividend Yield | 0.00% |
Sprinklr, Inc. offers numerous products to businesses large and small through the cloud. Some of the company’s products include the following:
- The Unified Customer Experience Management Platform is their flagship product. It enables businesses to scrutinize customer experience data regardless of whether said data is organized in a specific format or not.
- Sprinklr Insights enables businesses to derive profound and actionable insights from the data generated by various channels.
- Sprinklr Service is a contact center that is entirely cloud-based. The platform relies on AI to offer end customers the best service possible through different channels.
- Sprinklr Marketing helps businesses streamline their marketing operations.
- Sprinklr Social can play a huge role in how businesses listen and analyze their customers’ conversations throughout different channels.
What’s more, Sprinklr has been exceeding analysts’ expectations over the past few quarters. For instance, in Q4 of 2022, Sprinklr’s revenue and profits were far better than what most had imagined. The tech company’s financial projections for the fiscal year of 2024 are better than what the market would have anticipated: Sprinklr justifies these high expectations through a strong ability to upsell to its existing customer base and a relatively stable purchasing environment for its products.
Simply put, Sprinklr expects the next few years to bring about plenty of revenue growth as well as healthy margins.
8. Nio Inc. (NIO)
| Price as of writing | $7.67 |
| P/E | -5.91 |
| Dividend Yield | 0.00% |
Earlier, we talked about how Nvidia was powering self-driving cars, so it’s only fair that we explore a company that actually sells these intelligent vehicles.
Based in China, Nio Inc. sells electric vehicles of different sizes, and it incorporates AI tech into its cars, offering products such as advanced driver assistance systems (ADAS) along with autonomous driving capabilities.
A Nio car comes with an AI assistant called NOMI. NOMI can change the music in the car, adjust the temperature, answer questions, and provide directions, making her the ideal car passenger.
Nio has built NIO Pilot, which is a cloud-based platform that leverages AI and big data. Through the NIO pilot, Nio hopes to make driving a safer, more pleasant experience.
9. Duos Technologies Group, Inc. (DUOT)
| Price as of writing | $5.57 |
| P/E | -6.09 |
| Dividend Yield | 0.00% |
Duos builds, manages, and sells advanced AI solutions covering a wide range of use cases. The tech company leverages some of the most advanced AI algorithms, including machine learning, object detection, computer vision, and deep neural networks. Here are some of their main products:
- Centraco helps enterprises manage their information systems.
- Truevue360, which is an integrated platform that facilitates the process of building and deploying AI solutions.
- Praesidium helps businesses manage their sensors and image-capture devices.
Duos has recently launched two new artificial intelligence detection models, both of which fit in with the Railcar Inspection Portal solution meant to help train operators with the inspection of passenger railcars as they speed down the tracks at 125 miles per hour.
10. Rekor Systems, Inc. (REKR)
| Price as of writing | $1.60 |
| P/E | -10.2 |
| Dividend Yield | 0.00% |
Rekor is shaking up transportation and public safety with the help of advanced AI algorithms. The company provides smart infrastructure systems, supporting more than 90 countries from all over the globe.
From 2019 to 2022, Rekor’s revenue has grown by 225%. Near the end of Q3, the tech company was serving more than 1200 active users, most of whom were benefiting from its collection of e-commerce platform solutions. Moreover, as the investment in infrastructure is expected to increase in the near future, Rekor Systems believes that the best is yet to come.
Top AI ETFs
While it can be exciting to invest in the right stock and watch your investment skyrocket, you might want to be more cautious and mitigate your risk through diversification. In this case, putting your money in an ETF might be the right move.
So, let’s take a look at some of the biggest ETFs in this space.
1. Robo Global Robotics and Automation Index ETF (ROBO)
| Price as of writing | $1.60 |
| P/E | -10.2 |
| Dividend Yield | 0.00% |
| Expense Ratio | 0.95% |
ROBO invests mainly in companies that generate “transformative innovations in robotics, automation, and artificial intelligence.”
The fund has invested in 80 companies, and its holdings are diversified enough so that no single stock comprises more than 2.5% of the fund’s value. The 5 biggest companies in ROBO’s portfolio make up only 9% of the fund’s total value.
Here are some of the biggest names in ROBO’s portfolio:
- Harmonic Drive Systems (HSYDF) is the fund’s largest holding, accounting for 2.5% of the fund’s value. It is a Japanese company dedicated to manufacturing equipment as well as components critical for complex systems such as industrial robots and semiconductor plants.
- IPG Photonics (IPGP) serves the medical and telecom industries. It manufactures cutting-edge fiber lasers.
- Kardex Holding (KRDXF), which offers automated storage solutions.
- Samsara (IOT), which helps logistics companies track their fleets and vehicles with the help of advanced software.
From a financial standpoint, ROBO has been keeping up with the S&P 500, matching its returns but trailing a bit when dividends are taken into consideration.
2. Global X Robotics & Artificial Intelligence ETF (BOTZ)
| Price as of writing | $28.44 |
| P/E | 31.09 |
| Dividend Yield | 0.16% |
| Expense Ratio | 0.69% |
BOTZ has a strategy of investing in “companies that potentially stand to benefit from increased adoption and utilization of robotics and artificial intelligence.” Consequently, the fund looks for companies manufacturing industrial robotics, creating automation software, and selling autonomous vehicles.
While BOTZ has around 44 companies in its portfolio, the fund is far less diversified than ROBO. BOTZ has 40% of its value concentrated in its top five investments. Here are some of its main holdings:
- Keyence (KYCCF) is a Japanese company focused on enabling factories to automate their manufacturing operations. Consequently, Keyence builds and sells sensors, scanners, and other automation products.
- Fanuc (FANUY) is another Japanese company operating in the factory automation space. It manufactures lasers, robots, and molding machines that use electric injection.
- Intuitive Surgical (ISRG) serves the healthcare sector. One of Intuitive’s main products is the da Vinci robotic surgical system, enabling surgeons to perform minimally invasive surgery with extreme precision.
- ABB (ABB) is another company working on industrial automation. However, this Swiss manufacturer also creates robotic products to be used in infrastructure and utilities.
- Nvidia (NVDA) is a chip manufacturer that powers numerous artificial intelligence applications, including data centers, autonomous vehicles, and so on.
Financially speaking, BOTZ has underperformed relative to the S&P 500. Nevertheless, given how concentrated this fund is, it is suitable as a growth investment, one with higher risk but potentially higher rewards. Even though 40% of the fund’s portfolio is invested in U.S. companies, BOTZ also has exposure to the Japanese market.
3. iShares Robotics and Artificial Intelligence ETF (IRBO)
| Price as of writing | $31.98 |
| P/E | 20.37 |
| Dividend Yield | 0.62% |
| Expense Ratio | 0.47% |
IRBO is a relatively young fund founded in 2018. And with a total market capitalization of $578 million, it is also somewhat smaller than your average fund.
Nevertheless, IRBO is very well diversified. It has around 118 companies in its portfolio, many of which are small-cap companies that are poised for meteoric growth.
These are some of the biggest holdings in IRBO’s portfolio:
- Meitu (1357.HK) is a holding company in China. It has a considerable portfolio of applications dedicated to photos and community.
- iQIYI (IQ) is another Chinese company. But its focus is more related to video streaming services and similar entertainment products that are video-based.
- Spotify (SPOT) really needs no introduction. It’s the popular streaming service that almost everybody and their mother use nowadays.
- Sumo Logic (SUMO) offers data analytics as well as log management services through its cloud platform.
- Hello Group (MOMO) is a dating company based in China.
Financially, IRBO is exposed to cloud stocks along with chipmakers more than it is exposed to AI companies. Consequently, the cloud computing space is bound to have a large impact on this fund’s performance.
4. First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT)
| Price as of writing | $44.95 |
| P/E | 30.12 |
| Dividend Yield | 0.29% |
| Expense Ratio | 0.65% |
Founded in 2018, ROBT tracks the Nasdaq CTA Artificial and Robotics Index (NQROBO), which in turn is comprised of companies that operate in the artificial intelligence and robotics space.
ROBT invests in more than 108 stocks. Here are some of the more prominent holdings:
- C3.ai (AI) is a SaaS company dedicated to enabling other companies to develop and deploy their own AI applications.
- Atos (AEXAF) uses analytics, AI, and automation to aid companies with their digital transformation.
- Pegasystems (PEGA) offers a low-code software platform.
- ANSYS (ANSS) builds software for engineering simulation.
- Luminar Technologies (LAZR) manufactures sensors and sells them to the automotive industry.
ROBT might be young, but its financial performance has been decent. It hasn’t fallen too far away from the S&P 500 over the past couple of years.
What Are The Risks of Investing in AI?
With all of the hype surrounding AI, it is always important to be vigilant and to enter any investment position with both eyes open. So, let’s quickly go over some of the risks involved in putting your hard-earned cash behind AI.
Given All The Excitement, Is There an AI Bubble?
When ChatGPT was released to the world, it caused quite a stir. Everybody was excited by what the new tech could do, and people’s imaginations started going wild with all the potential.
OpenAI, the company behind ChatGPT, saw its valuation almost double. In 2021, the company was valued at $14 billion. Buoyed by the hype generated by ChatGPT, OpenAI’s valuation catapulted to $29 billion by the end of 2022.
In fact, over the past few months, any company remotely related to AI has seen investment interest increase. A case in point is how BuzzFeed’s stock almost doubled in a single day when it announced that it would partner with OpenAI to build an article writer powered by AI.
The problem is that this hype has caused many investors to misplace their money. For instance, some investors have inadvertently pumped money into companies that tout their AI products, although these same companies have yet to achieve product-market fit.
Many AI companies have enjoyed an increase in their valuation thanks to all of the hubbub. Yet, when you truly dig into the numbers, you will find that nothing has changed about these companies’ fundamentals.
So, yes, many of the companies operating in this space are overvalued. Nevertheless, it is too early to assert that we are in a bubble, as these companies’ valuations have yet to surpass their all-time highs.
Consequently, the best advice is to approach with caution and bear in mind that many quoted prices are overly inflated thanks to all of the fervor surrounding the space.
AI Comes With Its Own Can of Worms
As revolutionary as AI technology may be, it has its own set of problems that could hinder the growth of the entire sector.
For instance, data privacy is still a contentious issue with no clear solution in sight. The problem is that AI and machine learning algorithms need mountains of data to train, but to get that data, tech companies might infringe on your privacy and mine. There is no clear solution to this problem.
The concern is that too much red tape will slow the advancement of the field.
Each AI company is bound to run into its host of problems depending on the industry in which it is operating and on the problem it is trying to solve. For example, manufacturers of autonomous vehicles have to contend with regulations constricting their actions. Yet, these regulations are also necessary as they protect us and keep our roads safe.
When looking to invest in an AI company, you might want to look at the number of problems it is trying to solve. The more problems said the company is shouldering, the more likely that the company’s progress and growth will be hampered by regulations and restrictions.
Putting It All Together…
Given how revolutionary yet nascent the AI industry is, it comes as no surprise to see players big and small involved in this space. For the investor, each type of company offers unique benefits and constraints. Large companies are more stable, less risky, and usually pay dividends but are involved in many fields other than AI. Alternatively, smaller companies offer larger growth potential despite being quite volatile, and some are pure-play AI bets. For the risk-averse investor, there are several ETFs that can do the trick.
Here’s how to find the best AI stocks or ETFs for you.
Regardless of what you choose to do, always make sure that you know what you’re getting into and be sure not to get sucked in by the hype!
