artificial-intelligence-stocks-to-buy-and-watch:-software-companies-make-ai-acquisitions

Artificial Intelligence Stocks To Buy And Watch: Software Companies Make AI Acquisitions

Artificial intelligence stocks are rarer than you might think. Many companies tout AI technology initiatives and machine learning. But there really are few — if any — public, pure-play artificial intelligence stocks.




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In general, look for companies using AI technology to improve products or gain a strategic edge.

Nvidia (NVDA) is the leading provider of AI chips for cloud computing and other applications. Nvidia reported second-quarter earnings that topped views and was featured as the IBD Stock of the Day.

Google-parent Alphabet (GOOGL) rates a buy because of “artificial intelligence/machine learning advantages across the product stack,” said Bank of America in a July 28 report.

AI tools are playing a big role in Facebook‘s (FB) expansion of shopping experiences, including Instagram and WhatsApp.

Look for Apple stock to get a boost from smart wireless earphones, says UBS analyst Jimmy Yu. He expects big upside for Apple (AAPL) from smart wireless earphones using artificial intelligence software.

“The smartification of wireless earphones is just beginning,” he said in a report. Yu said earphones are unlikely to become a standalone smart device and will likely continue to rely on a smartphone’s computing power and installed apps. However, earphones will be equipped with more sensors.

Apple Stock Boost From Smarter Wireless Earphones?

Microsoft (MSFT) on April 12 acquired speech recognition software maker Nuance Communications (NUAN), whose artificial intelligence tools are widely used in the health care market.  Microsoft aims to deliver Nuance AI tools to health care customers via its Azure cloud computing platform.

Redmond, Wash.-based Microsoft agreed to pay $56 per share for Nuance in the $16 billion deal.

Applied Materials (AMAT) in March rolled out a new optical inspection system, called ExtractAI, to detect chip defects by using AI software. AMAT stock owns a Relative Strength Rating of 90 out of a best possible 99, according to IBD Stock Check-up.

Artificial Intelligence Stocks: Top VC Investors

The top AI stocks to buy spans from chip makers, enterprise software companies and on to technology giants that utilize AI tools in many applications. Think of cloud computing giants Amazon.com (AMZN), Microsoft and Google.

Microsoft belongs to the IBD Leaderboard as well as Nvidia, ServiceNow (NOW), cybersecurity firm CrowdStrike Holdings (CRWD) and Google stock. Further, the Leaderboard is IBD’s curated list of leading stocks that stand out on technical and fundamental metrics.

Chip maker Nvidia aims to “democratize” AI across all industries and fields of research.

Intel Capital, the venture arm of Intel (INTC), in 2020 retained its No. 1 ranking for investments in AI startups, according to research firm CB Insights. Qualcomm (QCOM) joined the top five list for the first time. VC money is going to Databricks, DataRobot, Samsara and other AI startups.

Meanwhile, more AI companies are launching initial public offerings, such as Palantir (PLTR) and C3.ai (AI).

Worldwide revenues for artificial intelligence software, hardware and services will grow over 16% annually from 2021 to 2025 to reach $327.5 billion, forecasts International Data Corp.

Meanwhile, 71% of smartphones sold globally in 2021 will feature AI software for power optimization, imaging, virtual assistants and to improve device performance, forecasts Strategy Analytics. That’s up from 54% last year.

All AI software needs computing power to find patterns and make inferences from large quantities of data. The race is on to build AI chips for data centers, self-driving cars, robotics, smartphones, drones and other devices.

AI Stocks: Chip Market To Hit $70 Billion By 2025

The worldwide AI semiconductor market will grow to more than $70 billion by 2025, up from $23 billion in 2020, forecasts research firm Gartner.

Nvidia in September 2020 agreed to buy Arm Holdings from Softbank for $40 billion. Analysts say Nvidia aims to accelerate the artificial intelligence processing capabilities of ARM chips.

Further, AI chipmaker Graphcore recently raised $222 million at a $2.77 billion valuation. SambaNova is another high momentum AI competitor, says Mizuho Securities.

Amazon Web Services, the cloud unit of Amazon, recently said it would offer Intel’s Habana AI chips to its customers. Intel in late 2019 acquired Israel-based Habana Labs for $2 billion.

At its virtual re:Invent conference in December, AWS claimed to have “the broadest and most complete set of machine-learning capabilities” among cloud computing service providers. AWS also unveiled a new machine learning training chip, Trainium.

Microsoft’s Azure and Google’s cloud computing unit also sell AI analytical services to business customers.

AI technology uses computer algorithms. The software programs aim to mimic the human ability to learn, interpret patterns and make predictions.

“Machine learning” is the most widely used form of AI deployed in industries. Machine learning systems use huge troves of data to train algorithms to recognize patterns and make predictions.

Software Companies Integrate AI Tools

“AI workloads are classified as training or inference,” said Oppenheimer analyst Rick Schafer in a recent report. “Training is the creation of an AI model through repetitive data processing/learning. Training is compute-intensive, requiring the most advanced AI hardware/software. Generally located in hyperscale data centers, we estimate training total addressable market at $21 billion by 2025.”

Other AI companies to watch include information technology services firms such as IBM (IBM), Accenture (ACN), and Epam Systems (EPAM). Palantir and IBM recently partnered to sell AI services.

Research firm IDC estimates that IBM, Accenture and Infosys hold 28% of the $17 billion artificial intelligence IT services market, said a Susquehana Financial Group report.

In addition, software companies are among artificial intelligence stocks to watch. Many software-as-a-service companies use AI tools.

Zendesk (ZEN) recently acquired Cleverly to advance customer service.

San Mateo, Calif.-based Coupa (COUP) acquired Llamasoft, a provider of AI-powered supply chain software, for about $1.5 billion. Llamasoft’s customers include Boeing (BA) and Home Depot (HD).

Enterprise software maker ServiceNow has been making AI acquisitions. Under new Chief Executive Bill McDermott, ServiceNow in  early 2020 acquired two AI companies, Passage AI and Loom Systems.

DocuSign (DOCU) in 2020 agreed to buy Seal Software for $188 million. The startup uses artificial intelligence for contract analytics.

AI Stocks In Consumer Applications

Apple recently hired former Google scientist Samy Bengio, who left the internet search giant amid turmoil in its artificial intelligence research department. Bengio will lead a new AI research unit at Apple under John Giannandrea. He joined Apple in 2018 after spending about eight years at Google.

It’s no secret that Alphabet, Microsoft, Facebook and Amazon are all spending big bucks on AI technology. The tech giants are putting AI in consumer products and services, such as voice-activated smart home devices. Google and Facebook use AI tools in digital advertising.

Amazon uses AI to customize online retail offerings and recommend products to website visitors. Facebook uses AI to enhance its activity feed, photo and social media apps.

Meanwhile, Netflix (NFLX) utilizes AI to personalize its internet TV content for subscribers.

Omdia forecasts that annual AI software revenue will increase from $9.7 billion worldwide in 2018 to $119.3 billion in 2025.

Artificial Intelligence Stocks Span Industries

In addition, AI competition is fierce in many industries. They include financial services, pharmaceuticals, health care  and cybersecurity. Worldwide spending on AI software for retail uses will boom to $9.8 billion in 2025, up from $1.3 billion in 2019, forecasts Omdia.

The “AI” stock ticker has been claimed by C3.ai. The Redwood City, Calif.-based company sells AI software for the enterprise market. The initial public offering of C3.ai on Dec. 9 raised $651 million. But AI stock has collapsed.

In the energy industry, startup C3.ai has teamed with Baker Hughes (BKR) and Microsoft to use artificial intelligence in preventive maintenance. Thomas Siebel, who started Siebel Systems and sold it to Oracle (ORCL) for nearly $6 billion in 2006, founded C3.ai.

In October, Microsoft and Adobe Systems (ADBE) partnered with artificial intelligence startup C3.ai to sell customer relationship management software, Salesforce.com‘s (CRM) core business.

Meanwhile, AI startup Databricks raised $1 billion in a new funding round, giving it a $28 billion valuation. Databrick’s new investors include  Alphabet, Salesforce.com (CRM) and Amazon.

There’s plenty AI competition in enterprise software.

Meanwhile, Salesforce’s Einstein tools improve sales forecasts. The AI software uses a company’s historical lead and account data to predict which deals are more likely to close. Salesforce has expanded Einstein tools into financial services and other markets.

In addition, Salesforce on Nov. 24 said its Einstein platform now delivers more than 80 billion AI-powered predictions daily for sales, service, marketing and commerce. That’s up from 6.5 billion in October 2019.

IBD 50: Leading Growth Stocks Use In AI

In e-commerce, Adobe’s AI tools personalize website content to spotlight products or services that online shoppers are most likely to buy. Also, Adobe also belongs to the IBD Leaderboard.

Further, The IBD 50 roster of growth stocks has featured artificial intelligence stocks in online dating, digital advertising and business communications.

In addition, other companies using AI include:

Square (SQ): Square Capital, part of digital payment processor, provides loans to merchants. Square Capital uses an AI-driven credit assessment platform in granting new loans.

Match Group (MTCH): Controlled by IAC (IAC), Match is using artificial intelligence to improve its Tinder mobile dating app. Tinder’s new “Super Likable” feature uses machine learning.

Trade Desk (TTD): The digital advertising firm provides automated tools to help customers buy online ads and optimize return on spending. Trade Desk’s AI tools identify the best websites to buy ads on.

Cybersecurity Firms Among Artificial Intelligence Stocks

Here are other stocks to consider:

• Five9 (FIVN): A provider of cloud-based contact center software, Five9 is developing machine learning algorithms that help companies automate customer support. Five9 is partnering with Google on AI contact center software.

• Visa (V) and Mastercard (MA): The credit card networks use AI tools to detect financial crimes such as fraud and money laundering. In addition, big banks use AI in chat bots that provide online customer services.

• Palo Alto Networks (PANW) and Fortinet (FTNT): With artificial intelligence, the cybersecurity firms aim to spot and block malicious activity on computer networks better than existing technologies can.

Omdia forecasts that AI chipsets and accelerators for “edge” applications will grow to $51.9 billion by 2025, up from $7.7 billion in 2019. Those apps include mobile phones, automotive, drones, security cameras, robots and smart speakers.

In addition, memory chip makers such as Micron Technology (MU) should get a boost, analysts say. That’s because intelligent devices will need more more memory to process AI apps.

U.S., China Battle In Artificial Intelligence

Semiconductor manufacturing equipment makers such as Applied Materials expect AI to boost demand for high-end gear. Test equipment makers such as Teradyne (TERcould get a boost from AI chips as well.

Also, the U.S. is racing versus China and other countries to develop artificial intelligence technology. In January, the U.S. government placed restrictions on the export of AI software.

Further, the use of artificial intelligence in facial recognition and some other areas has become controversial. Also, Alphabet CEO Sundar Pichai has called for regulation of artificial intelligence.

In addition, investors interested in AI technology also could consider the TCW Artificial Intelligence Equity Fund (TGFTX). It’s primarily for institutions but is open to retail investors.

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.

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