In this article, we discuss 11 best artificial intelligence stocks to buy now. If you want to skip the introduction and detailed analysis of the artificial intelligence market, go to 5 Best Artificial Intelligence Stocks To Buy Now.
Artificial intelligence is defined as the intelligence displayed by machines, while natural intelligence is the term coined for the intelligence demonstrated by humans. Over the years, AI has developed multiple applications such as search engines, recommendation systems, and self-driving cars, along with the capability of machines to understand human speech in personal assistants such as Siri and Cortana.
As an academic discipline, artificial intelligence was founded in the 1950s after Alan Turing’s “I propose to consider the question ‘can machines think’?” in the academic journal “Mind”. However, major advancements came decades later.
According to Allied Market Research, the global artificial intelligence market was worth $65.48 billion in 2020 and is expected to grow to $1.58 trillion by 2030 at a CAGR of 38%. While other industries saw a setback due to the pandemic, AI is one sector which the World Health Organization emphasized as an important tool for the future. After COVID-19, the global artificial intelligence funding was doubled to $66.8 billion in 2021, and 65 AI companies reached a valuation of more than $1 billion. According to CB Insights, the venture funding towards AI increased by 142% on a YoY basis to $93.3 billion in Europe, with most of the concentration in England. In the same year, the UK government also released a 10-year plan to boost AI development.
According to a report, the US is the top country in the assessment of investor friendliness within the AI space. Between 2016 and 2021, 8,300 deals were recorded in the US, followed by China with 2,500 AI deals. During the same period, over 58,000 AI-related patents were registered in the US.
Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOGL) are some of the major companies working in the artificial intelligence space.
Our Methodology
After a careful assessment of the artificial intelligence sector, we chose the 11 best stocks that have adopted AI in their operations or based their business model upon AI. The companies were chosen according to their financial history, balance sheet position, and future growth prospects.
The companies were listed according to their hedge fund sentiment as of the first quarter of 2022, which was taken from Insider Monkey’s database of 912 elite hedge funds.
Best Artificial Intelligence Stocks To Buy Now
11. EPAM Systems, Inc. (NYSE:EPAM)
Number of Hedge Fund Holders (Q1): 38
EPAM Systems, Inc. (NYSE:EPAM) is a Pennsylvania-based company that focuses on digital platform engineering and software development services. The company also has an AI-based platform for IT operations and workforce management called TelescopeAI®.
According to its Q2 reports, EPAM Systems, Inc. (NYSE:EPAM) outperformed its EPS estimates by $0.67. Revenue was up 36.2% on a YoY basis to $1.2 billion and $300 million more than the previous quarter. The Wall Street revenue forecast was beaten by $80 million. For Q3 2022, the company expects revenues of at least $1.21 billion vs the street consensus of $1.18 billion. The non-GAAP EPS is expected to be $2.48, while the estimates stand at $1.99. Moreover, as of June 30, EPAM Systems, Inc. (NYSE:EPAM) had cash and cash equivalents of $1.29 billion and generated free cash flows of $59.4 million. The operating cash flow was recorded at $77.5 million and the company’s long-term debt stood at $30.2 million.
On August 9, Susquehanna analyst James Friedman reaffirmed a Positive rating on EPAM Systems, Inc. (NYSE:EPAM)’s shares and raised his price target to $496 from $370. The analyst noted that the company’s utilization was better than feared for the second quarter. Furthermore, he added that the company’s net headcount remained flat despite 50% of the company personnel based in Russia.
EPAM Systems, Inc. (NYSE:EPAM) is a key player in the artificial intelligence market. Other significant artificial intelligence stocks to buy are Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOGL).
10. International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders (Q1): 43
International Business Machines Corporation (NYSE:IBM) is a multinational technology company that operates in 170 countries around the globe. It is one of the leading companies in the AI world. Its AI technology, IBM Watson, is used in almost every industry. Furthermore, the company also offers online AI courses for people interested in studying the field.
For Q2 2022, International Business Machines Corporation (NYSE:IBM) reported an EPS of $2.31, beating the estimates by $0.02. The revenue was up by 9.3% YoY to $15.54 billion, outperforming the estimates by $360 million. For the first half of 2022, the company generated a free cash flow of $3.3 billion compared to $2.6 billion in the first half of 2021. Furthermore, the company expects to generate $10 billion of FCF by the end of 2022. The company also decreased its total debt by $1.4 billion in 1H 2022. The company exited the quarter with $8 billion in cash, including approximately $200 million from the previous year.
International Business Machines Corporation (NYSE:IBM) has increased its dividend for the past 27 years and has been paying out dividends since 1916. On July 26, the company declared a dividend of $1.65 per share, in line with the previous quarter, payable on September 10 to the shareholders of record on August 10. As of August 19, International Business Machines Corporation (NYSE:IBM) has a dividend yield of 4.77%.
Here is what St. James Investment Company had to say about International Business Machines Corporation in its Q4 2021 investor letter:
“IBM was not the first company to build computers. The distinction belongs to Sperry-Rand’s subsidiary UNIVAC, which introduced the first commercially successful computers in the early 1950s. In this era, IBM did possess the largest research and development department in the business machines industry and quickly caught up, introducing cost-competitive computers a few years after UNIVAC. By the late 1950s, IBM held the dominant market share in computers. IBM also touted a vastly superior sales organization, which used a sales tactic called “paper machines” (the equivalent of today’s “vaporware”). If a competitor’s product was selling well in a market segment that IBM had yet to penetrate, the company would announce a competing product and start taking orders for the “paper machine” long before it was available.
One cannot overstate how powerful IBM was in the computer industry in the 1950s and 1960s. Every competitor rightly worried that if their product worked too well for too long, it was only a matter of
time before an army of IBM salesforce representatives mobilized. In their easily recognizable uniforms of starched white shirts, red ties, and blue suits, IBM marketers marched on their customers and offered a more expensive, but much more defensible, choice. “Nobody gets fired for buying IBM” was a common phrase. Even competitors acknowledged that the company excelled at sales. As a UNIVAC executive once complained, ‘It doesn’t do much good to build a better mousetrap if the other guy selling mousetraps has five times as many salesmen.’” (Click here to see the full text)
9. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Holders (Q1): 73
QUALCOMM Incorporated (NASDAQ:QCOM) is a multinational semiconductor company. The company started its AI journey with its 5G modem-RF system, the Snapdragon X70. The modem is the first ever modem-to-antenna 5G system with an integrated AI processor.
QUALCOMM Incorporated (NASDAQ:QCOM) has significantly increased its profit margins over the years and is one of the market leaders in its respective sector. The operating margin was 16.7% in 2018, which reached 35.8% in the first half of 2022. Its ROE figures were negative in 2018 and reached over 100% in early 2021. As of July 31, the ROE was at 107.5%. Additionally, the company has increased its dividends for 21 years and has a 2.03% dividend yield as of August 19. Further adding to shareholder returns, QUALCOMM Incorporated (NASDAQ:QCOM) has been constantly buying back shares at an average of over $690 million per quarter in the last three years.
On July 28, Canaccord analyst T. Michael Walkley maintained a Buy rating on QUALCOMM Incorporated (NASDAQ:QCOM)’s shares and lowered the price target to $225 from $250. Walkley lowered his price target due to multiple compression. However, he believes that the company has a strong 5G leadership position that will result in strong share gains and long-term growth in IoT, RF, and automotive.
Here is what ClearBridge Investments had to say about QUALCOMM Incorporated (NASDAQ:QCOM) in its Q4 2021 investor letter:
“Market strength continued in the fourth quarter, with only the communication services sector down in the Russell 1000 Value Index. Portfolio returns benefited from the strong performance of semiconductor maker Qualcomm, which has executed exceptionally well in pursuing the transition to 5G, growing both content and share due to its leadership position in cellular technology. The chipmaker recently outlined a number of peripheral growth opportunities outside of mobile markets, including automotive (where it hopes to leverage its strong presence in the automotive infotainment space into advanced driver assistance systems), Internet of Things (including opportunities in the PC market, VR/AR market, and factory automation) and radio frequency (where mmWave adoption globally, including China, would drive substantial upside).”
8. Micron Technology, Inc. (NASDAQ:MU)
Number of Hedge Fund Holders (Q1): 78
Micron Technology, Inc. (NASDAQ:MU) produces computer memory and computer data storage products. It also designs semiconductor chips that power AI training and inference engines. On August 10, Deutsche Bank analyst Sidney Ho maintained a Buy rating on Micron Technology, Inc. (NASDAQ:MU)’s shares and lowered the price target to $68 from $70.
On August 10, Micron Technology, Inc. (NASDAQ:MU) announced that the company will invest around $40 billion towards its expansion in the US. The expansion will be done in multiple phases in the next 5 years with the help of the Federal CHIPS and Science Act funding, valued at $52.7 billion. This expansion is expected to increase the US market share of 2% in memory chip production to 10%. Furthermore, in 2021, the city of Manassas, Virginia pre-approved the sale of 18.12 acres of city-owned land to the company. The offer is valid for the next three years. However, the land is being offered for $14.1 million which is above the market price of $6.2 million.
On June 30, Micron Technology, Inc. (NASDAQ:MU) declared a 15% increase in its quarterly dividend to $0.115 per share, paid in cash on July 26 to the shareholders of record on July 11. As of August 16, the company has an annualized dividend payout of $0.46 and a 0.71% dividend yield. The P/E ratio of Micron Technology, Inc. (NASDAQ:MU) is 7.25, which is fairly low compared to the industry average of 18.8.
Here is what Hazelton Capital Partners had to say about Micron Technology, Inc. in its Q3 2021 investor letter:
“It’s hard to explain how shares of Micron Technology, manufacture of DRAM and NAND semiconductor chips, can fall during a global chip shortage. In most industries, focusing on demand can give you a clear insight into what lays ahead for a company. Today, the memory and storage chip industry is no different. However, in the past, companies focused on market share led to the reckless build out of chip fabrication plants (FABs), oversupply, falling average selling prices (ASPs) of memory and storage chips, lower margins, and declining cash flows. As the industry consolidated – there are now just 3 major producers of DRAM and 5 on the NAND side – rational behavior among the key players began to take hold as competitors began focusing more on R&D. Currently, chip pricing remains cyclical although less so than in the past and that cyclicality has a long-term upward bias. The ongoing transition to newer and more robust platforms (3D 176-layer NAND & 1-Alpha node DRAM) has provided the memory and storage chip industry with improved supply capacity under its current manufacturing footprint, ultimately pressuring ASPs. Over the past three years, as most of the large platform conversions have already taken place, being able to add more bits per wafer has reached a saturation point. With no major FAB build outs planned in the near-term by competitors Samsung or SK Hynix, constrained supply and flattening cost curves should lead to durable and upward sloping ASPs once the recent volatility from the chip shortage subsides.
Currently Micron Technology trades at just 8x 2022 estimate earnings. MU is expecting growth in both DRAM and NAND not just from the supply of more chips to data centers, artificial intelligence, the auto sector, and mobile devices, but also from greater demand for gigabyte capacity per unit within those segments. With a healthy balance sheet, improving return on invested capital, and expanding cash flows, not only should Micron benefit from improving future earnings but its multiple should also reflect the transition to a flattening cost curve.”
7. ServiceNow, Inc. (NYSE:NOW)
Number of Hedge Fund Holders (Q1): 90
ServiceNow, Inc. (NYSE:NOW) develops enterprise software and cloud computing platforms. The company has made AI acquisitions since 2018 including the AI startup Parlo, Passage AI, and Element AI. In 2020, the company launched “Orlando”, a cloud software aiming to fix practical problems using AI.
At the end of Q2 2022, ServiceNow, Inc. (NYSE:NOW) posted an EPS of $1.62, beating the street consensus by $0.07. The company’s revenue also climbed by 30.0% on a YoY basis to $1.75 billion, lagging behind the consensus by 0.62%. Furthermore, the renewal rate was recorded at 99%, increasing by 2% YoY. The non-GAAP gross margin increased by 100 bps to 82%, while the non-GAAP operating margin was 22.8% compared to 22% guidance. At the end of the quarter, the company had cash and cash equivalents of $3.83 billion, including short-term investments, and generated a free cash flow of $287 million.
On July 28, Truist analyst Joel Fishbein maintained a Buy rating on ServiceNow, Inc. (NYSE:NOW)’s shares and lowered the price target to $550 from $600. The analyst added that the company missed its revenue guidance, but he believes that the company’s underlying drivers are strong in the face of adverse impacts. Moreover, he sees value in the stock.
Here is what Ensemble Capital said about ServiceNow, Inc. (NYSE:NOW) in its Q2 2022 investor letter:
“ServiceNow is an enterprise software company that helps their corporate customers integrate all of their various software products into a unified platform. Their products are a key element of driving the digital transformation nearly every large company is undergoing. At the recent JP Morgan investor day, CEO Jamie Dimon explained that while the company could reduce expenses if needed should the economy slow, that their spending on digital transformation would continue as this spending was critical to the company managing costs and maximizing revenue over time. As an example of this type of spending, Dimon specifically pointed to ServiceNow, calling out that the company’s products now oversaw the single largest collection of JP Morgan data and highlighted that working with them had saved JP Morgan $50 million over the past few years.
While we have high expectations for ServiceNow’s long-term growth rate, at the company’s investor day in late May they offered an increased growth outlook for the next five years as they target even higher levels of growth than we have been expecting.”
6. Salesforce, Inc. (NYSE:CRM)
Number of Hedge Fund Holders (Q1): 114
Salesforce, Inc. (NYSE:CRM) is an American cloud computing and enterprise software company. The company provides customer relationship management (CRM) software and applications. Salesforce, Inc. (NYSE:CRM) jumped into the AI world with the launch of Einstien AI, an artificial intelligence platform for the company’s cloud computing segment.
Salesforce, Inc. (NYSE:CRM) currently has a run rate revenue of $31 billion. However, according to the management, it has a total addressable market of around $284 billion that has been expanding at a CAGR of 13% in the past 4 years. The annual revenues represent a market penetration of only 11%. As of August, the company is sitting on $13.5 billion of cash and the sum of net debt is around $10.6 billion. As of August 17, the company is trading almost 40% below its 52-week high which provides ample investment opportunities.
On August 16, Morgan Stanley analyst Keith Weiss reaffirmed an Overweight rating on Salesforce, Inc. (NYSE:CRM) and lowered his price target to $273 from $291. The analyst noted that the checks were “mixed” in Q2, in line with the broader group. Weiss sees the company as the most favorable risk/reward in the software segment.
Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOGL) are some of the best artificial intelligence stocks to buy along with Salesforce, Inc. (NYSE:CRM).
Here is what Vulcan Value Partners had to say about Salesforce, Inc. (NYSE:CRM) in its Q1 2022 investor letter:
“Salesforce.com Inc. is the dominant provider of customer relationship management software and technology. Salesforce has high retention rates, pricing power, high free cash flow, and a competitive moat. The company continues to execute well. Margins decreased slightly during the fourth quarter but continue to be on path for material expansion over the long term. Salesforce is seeing increased spending as employees are returning to the office, and we believe the global pandemic has only improved its prospects.”
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Disclosure: None. 11 Best Artificial Intelligence Stocks To Buy Now is originally published on Insider Monkey.
