AI Stocks: Tech Giants, Cloud Titans, and Chipmakers Compete for Supremacy

Ai Stocks As the excitement around artificial intelligence (AI) intensifies, numerous companies are now emphasizing their AI product strategies. However, finding genuine AI stocks that are already generating revenue from generative AI, such as Microsoft (MSFT) and Nvidia (NVDA), is a daunting task for investors. For many firms, including Google’s parent company Alphabet (GOOGL), the rise of generative AI presents both risks and opportunities.

Generative AI, which can create text, images, sounds, and video, is generating a lot of buzz. Amidst this excitement, it’s crucial to approach with caution. Here’s a summary of IBD research and articles on AI stocks.

In general, it’s wise to seek out AI stocks that utilize artificial intelligence to enhance products or gain a strategic advantage. The top AI stocks to invest in span chipmakers, software companies, cloud computing service providers, and major tech firms that integrate AI tools into various applications.

Ai Stocks Nvidia Stock Reverses From Record Highs

A bellwether for AI stocks, chipmaker Nvidia’s shares have surged 149% in 2024 after jumping 239% last year. In June, Nvidia became the world’s largest public company, hitting a market valuation of $3.33 trillion. However, NVDA stock recently retreated from record highs in heavy trading, sparking debates about its valuation.

Of the Magnificent Seven stocks, only Nvidia has joined Alphabet on the IBD 50 roster of growth stocks. Nvidia stock also belongs to Sector Leaders, one of IBD’s most stringent screens.

First shipments of Nvidia’s new “Blackwell” AI chip for data centers are expected to start this quarter. Nvidia’s AI chip roadmap includes Ruben and Vera launches in 2026.

Broadcom (AVGO), Advanced Micro Devices (AMD), Qualcomm (QCOM), ARM Holdings (ARM), and Marvell Technologies (MRVL) are other AI chipmakers to keep an eye on. Meanwhile, memory chipmaker Micron Technology (MU) reported fiscal third-quarter earnings that topped estimates, though its guidance underwhelmed investors.

Big Apple iPhone Upgrade Cycle?

At its Worldwide Developers Conference (WWDC), Apple announced plans to integrate OpenAI’s ChatGPT into the Siri voice assistant and iOS 18. The big question is whether Apple “Intelligence” features will drive a major iPhone 16 upgrade cycle in late 2024. These new AI features will only be available on the iPhone 15 Pro/Pro Max and upcoming iPhone 16 models.

While new “Apple Intelligence” features are free, Amazon is reportedly considering a $5 to $10 monthly fee for a new AI-powered Alexa voice assistant service.

Microsoft, the largest investor in startup OpenAI, is also making waves. OpenAI has told employees it is now on an annual revenue run-rate of $3.4 billion, up from $2 billion in January. OpenAI has been making acquisitions, such as Rockset, targeting the enterprise market.

Federal regulators are scrutinizing Microsoft’s investments and relationships with OpenAI and startup Inflection AI, according to reports.

AI Stocks: Enterprise Software Monetization Issues

A weak outlook from Salesforce (CRM) has raised questions about how soon software companies will monetize generative AI products. For most major application software companies, determining how to charge for AI-related products has been an issue.

Adobe Systems (ADBE) rebounded with a stronger-than-expected fiscal Q2, although management once again did not break out AI-related revenue.

Most enterprise software makers are not expected to monetize generative AI, or “conversational AI,” in a significant way until 2025, according to some analysts. Some U.S. companies are pursuing custom AI software development projects, which will take longer to ramp up commercially.

“While we are major believers in generative AI, we do not expect most software companies (except MSFT) to see real revenue benefits from AI until the second half of 2025 at the earliest,” said RBC Capital analyst Rishi Jaluria in a report.

Cloud Computing Capital Spending Jumps

So far, the biggest demand for AI chips has come from cloud computing giants and internet companies. Analysts expect a market for “edge AI” — on-device processing of AI apps — to emerge.

While “training” AI models is currently the biggest market for chipmakers like Nvidia, the market will eventually shift to “inferencing,” or running AI applications.

Cloud computing giants Amazon.com (AMZN), Microsoft, and Google are spending heavily to expand data center capacity for AI workloads. Amid increased capital spending by cloud computing giants, the big question is how much incremental AI-related revenue they’re generating.

According to a survey by William Blair analyst Maggie Nolan, 29% of organizations are working with cloud companies to launch AI projects, while 17% are teaming with IT service providers such as Accenture (ACN). AI model companies like OpenAI come in third as project partners.

AI Stocks: Chipmakers and Data Center Infrastructure

Arista Networks (ANET) has climbed 49% in 2024. The company recently announced a $1.2 billion buyback.

Also, AI technology uses computer algorithms to mimic the human ability to learn, interpret patterns, and make predictions. Until recently, machine learning was largely limited to models that processed data to make predictions. AI models focused on pattern recognition from existing data. Corporate spending on AI projects was modest as companies mulled over the return on investment.

Now, many companies are scrambling to launch generative AI pilot programs. But investors want AI stocks to show progress in boosting revenue as exploratory projects translate into tangible demand.

AI Stocks to Watch by Industry Group

Generative AI models process “prompts” to create text, images, video, and code. Companies aim to boost productivity by developing customized AI for specific industries, using proprietary data to train AI models.

Consumer Internet Landscape

Goldman Sachs predicts significant changes in the consumer internet landscape over the next 12 to 18 months, but it’s unclear who the winners and losers will be as AI disrupts existing business models.

“We see three potential sources of disruption from AI as it relates to consumer internet habits,” said a Goldman Sachs report. “AI powers new interfaces that can cause shifts in how consumers start their online journey (chatbots, voice assistants). Generative AI offers a more streamlined search experience on traditional browsers which can disrupt the current digital advertising landscape. Generative AI will be deployed inside mobile applications and websites to offer more conversational experiences to consumers.”

Will AI ‘Native’ Startups Challenge Tech Giants?

One key question for investors is whether tech industry incumbents will be the big generative AI winners or if a new wave of AI startups will eventually dominate.

Large language models (LLMs) provide the building blocks to develop applications and help AI systems understand human language. Companies with access to large amounts of data have an edge.

OpenAI is part of a wave of LLM startups that includes AI21 Labs, Anthropic, and Cohere. Anthropic introduced Claude 3, the newest version of its chatbot, claiming its performance is better than OpenAI’s GPT-4. However, OpenAI’s dominance faces a challenge from open-source LLMs. Musk’s xAI announced it will open source its Grok LLM.

Meta Platforms and IBM (IBM) joined with 40 other companies and organizations to form the AI Alliance, supporting open-source AI models versus proprietary systems from OpenAI, Google, and others. Members of the AI Alliance include Intel (INTC), AMD, and Oracle (ORCL).

Hugging Face, an open-source community, offers tools to build LLMs and recently raised $235 million in a Series D funding round. Investors included Google, Amazon, Nvidia, Intel, Qualcomm, IBM, and Salesforce.

Amazon has invested $4 billion in Anthropic, a rival of OpenAI. Amazon owns a minority stake in Anthropic, which will use Amazon’s cloud-computing services.

Artificial Intelligence Stocks

Venture capitalist Marc Andreessen once observed how “software is eating the world” by transforming industries through automation. Similarly, artificial intelligence is expected to revolutionize software.

Gaining an edge with AI requires ongoing investments in computing, networking, and data-center infrastructure.

At its GTC conference on March 18, Nvidia unveiled its new Blackwell family of processors to succeed the company’s current Hopper model. The new Blackwell processors are due out later this year.

Broadcom hosted its “Enabling AI Infrastructure” event in San Jose, Calif., on March 20, announcing a new customer, “a hyperscaler in consumer AI.”

Cybersecurity firms also are among AI stocks to watch, including Palo Alto Networks (PANW), CrowdStrike, and Cloudflare (NET).

Snowflake (SNOW) and startups like Databricks aim to disrupt the vector database market with lightning-fast analysis of “unstructured data” gathered from sensors, such as streaming video analysis.

FAQs

1. What are the top AI stocks to watch in 2024?

• The top AI stocks to watch in 2024 include Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOGL), Broadcom (AVGO), Advanced Micro Devices (AMD), and Salesforce (CRM). These companies are at the forefront of integrating AI into their products and services.

2. Why is Nvidia considered a bellwether for AI stocks?

• Nvidia is a leader in AI hardware, particularly with its graphics processing units (GPUs) used for training and running AI models. Its recent market performance and advancements in AI chip technology, like the new “Blackwell” AI chip, make it a significant indicator of AI industry trends.

3. How is Microsoft leveraging AI to drive growth?

• Microsoft is the largest investor in OpenAI, the company behind ChatGPT. Microsoft’s Azure cloud services are integral to running AI applications, and it has integrated AI capabilities into its Office 365 suite, boosting productivity tools with AI features.

4. What challenges do companies face in monetizing AI products?

• Many companies struggle with determining the best pricing models for AI-related products. The high costs of developing and running AI models, coupled with the need for substantial infrastructure investments, make it challenging to realize immediate profits. Analysts predict significant monetization might not occur until 2025 for many software firms.

5. How are cloud computing giants impacting the AI market?

• Cloud computing giants like Amazon, Microsoft, and Google are expanding their data center capacities to handle the growing demand for AI workloads. Their substantial investments in AI infrastructure drive the market for AI chips and related technologies.

6. What is generative AI and why is it important?

• Generative AI refers to AI systems that can create text, images, sounds, and videos. This technology is crucial because it has the potential to revolutionize various industries by automating creative processes and enhancing productivity.

7. What role do startups play in the AI industry?

• Startups like OpenAI, AI21 Labs, Anthropic, and Cohere are at the forefront of developing large language models (LLMs) and other AI technologies. They push the boundaries of what AI can do and often introduce innovative solutions that challenge established tech giants.

8. How are AI advancements expected to change the consumer internet landscape?

• AI advancements are expected to disrupt consumer internet habits by introducing new interfaces like chatbots and voice assistants, streamlining search experiences, and embedding conversational AI into mobile applications and websites, enhancing user interactions across various sectors.

9. What is the AI Alliance and what does it aim to achieve?

• The AI Alliance is a coalition of companies, including Meta Platforms, IBM, Intel, AMD, and Oracle, formed to support open-source AI models. It aims to promote collaboration and development of AI technologies that are accessible and beneficial to a broader range of users and industries.

10. What should investors consider when looking for AI stocks?

• Investors should look for companies that are not only integrating AI into their products but also showing progress in generating revenue from these AI initiatives. It’s also important to consider the company’s overall strategic positioning, infrastructure investments, and partnerships in the AI space.

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