In this article, we will be taking a look at 12 stocks that will benefit from AI. To skip our detailed analysis of the artificial intelligence sector, you can go directly to see the 5 Stocks That Will Benefit From AI.
Market Slowdown In August
August has been off to a slow start for most stocks. On August 8, the S&P 500 healthcare sector was the only sector in the green, while 10 remaining sectors were all down - even tech. Healthcare was up by 6.08 basis points or 0.38%, while tech was down by 41.45 basis points or 1.36%. While some observers are seeing this slow market activity as a sign that the bull market many were welcoming did not even start, others believe the only reasons behind the downward trend in stocks this month are high valuations and summer seasonal issues.
At a time like this, most investors would be tempted to hold off on the buying spree and wait for stocks to settle down before they swoop in. However, buying up stellar stocks, most notably artificial intelligence-related or technology stocks, right now when they seem to be down may be a strategy worth considering. Companies that have been working tirelessly to keep up with their competitors in the artificial intelligence arms race are in the red today, but there's no telling how long they'll stay there. For instance, Alibaba Group Holding Limited (NYSE:BABA), Baidu, Inc. (NASDAQ:BIDU), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) are three stocks that were down by 3.34%, 2.54%, and 0.41%, respectively, on August 8. These are companies that have been contributing to the artificial intelligence space this year, whether in the realm of generative AI or the provision of essential AI-related semiconductor chips, among more. Despite this, they are taking a beating alongside many other tech and AI stocks that analysts and investors are bullish on to this day.
Considering the way artificial intelligence has revolutionized the tech industry and the world, in general, this year, particularly with the advent of ChatGPT and other generative AI products, it's far too soon to write off the companies that are working in this space. It's likely that companies working with AI this year will profit immensely in the near future, which will ensure that their shareholders will profit just as much when the time to reap the benefits of their hard work finally rolls around. Considering this, we have compiled a list of such top stocks that will benefit from AI this year. They include some of the best AI stocks to buy now alongside other tech stocks that are introducing new AI products and services as part of their suite of products.
Stocks That Will Benefit From AI
Our Methodology
We have selected companies that have been actively investing and innovating in the AI space this year and have mentioned their specific contributions to the sector below. The companies are ranked based on the number of hedge funds holding stakes in them, from the lowest to the highest number of hedge fund investors. We used Insider Monkey's hedge fund data for the first quarter to rank them.
C3.ai, Inc. (NYSE:AI) is an application software company offering a platform that enables customers to design, develop, and deploy enterprise AI applications. It is based in Redwood City, California. As a pure-play AI company in the market, it is likely to benefit immensely from the AI boom.
As of July 24, Joe Goodwin, an analyst at JMP Securities, maintains an Outperform rating on shares of C3.ai, Inc. (NYSE:AI). He also raised the firm's price target on the stock from $38 to $40.
At the end of the first quarter, 24 hedge funds held stakes in C3.ai, Inc. (NYSE:AI), with a total stake value of $151.9 million.
In its March 2023 investor letter, Kerrisdale Capital said the following about C3.ai, Inc. (NYSE:AI):
“We are short shares of C3.ai, Inc. (NYSE:AI), a $4 billion market capitalization enterprise software company that has risen from the ashes of its busted IPO based on the misconception that its self-proclaimed “AI leadership” somehow positions it to benefit from Silicon Valley’s current tech theme du jour: generative AI as represented by media obsession ChatGPT. We believe these speculative flames won’t burn bright much longer, as the realities of C3’s poor customer traction, failing sales partnerships, and financial pressures will catalyze what is likely to be a painful reality check.
Broad Peak Investment Holdings was the most prominent shareholder in Baidu, Inc. (NASDAQ:BIDU) at the end of the first quarter, holding 425,000 shares in the company.
A Buy rating was reiterated on shares of Baidu, Inc. (NASDAQ:BIDU) on July 17 by analyst Lincoln Kong at Goldman Sachs. The analyst also raised the price target on the stock from $183 to $197.
Baidu, Inc. (NASDAQ:BIDU) is a communication services company based in Beijing, China. The company was the first big Chinese company to release a generative AI product, the Ernie Bot, as competition for ChatGPT.
We saw 43 hedge funds holding stakes in Baidu, Inc. (NASDAQ:BIDU) in the first quarter. Their total stake value in the company was $2.1 billion.
Tweedy, Browne said the following about Baidu, Inc. (NASDAQ:BIDU) in its first-quarter 2023 investor letter:
“Many, if not most, stocks held in the Funds’ portfolios performed quite well in the first quarter. This was particularly true for the Funds’ non-US equity holdings, many of which have come into their own over the last two quarters, despite years of underperformance versus their US counterparts – a welcome shift given that our Funds’ portfolios have been somewhat non-US-centric in terms of their portfolio allocations for well over a decade. The Funds also received a long overdue boost from their Chinese and Hong Kong-based holdings in the wake of China’s reopening and the government’s signaling of a relaxation of their interventionist policies. This included strong returns in Baidu, Inc. (NASDAQ:BIDU) among others.”
Chris Caso, an analyst at Wolfe Research, initiated coverage on Micron Technology Inc. (NASDAQ:MU) shares with an Outperform rating on July 20. The analyst also announced an $80 price target on the stock.
Micron Technology Inc. (NASDAQ:MU) is a semiconductor company based in Boise, Idaho. The company is one of three companies making DRAM and NAND flash memory chips, which are vital for artificial intelligence systems today.
There were 73 hedge funds long Micron Technology Inc. (NASDAQ:MU) in the first quarter. Their total stake value in the company was $2.7 billion.
Like Alibaba Group Holding Limited (NYSE:BABA), Baidu, Inc. (NASDAQ:BIDU), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), Micron Technology Inc. (NASDAQ:MU) is a stock that has much to gain from the AI boom this year.
Palo Alto Networks, Inc. (NYSE:PANW) was spotted in the 13F holdings of 87 hedge funds in the first quarter, with a total stake value of $3.9 billion.
Palo Alto Networks, Inc. (NYSE:PANW) is a systems software company providing cybersecurity solutions globally. It is based in Santa Clara, California. The company has been working on a proprietary AI model to be used for specific security use cases and is likely to benefit from the popularity of AI as it attempts to introduce this technology in its cybersecurity operations.
An Outperform rating was maintained on shares of Palo Alto Networks, Inc. (NYSE:PANW) by Matthew Hedberg, an analyst at RBC Capital, on August 7. The analyst also placed a price target of $250 on the stock.
Like Alibaba Group Holding Limited (NYSE:BABA), Baidu, Inc. (NASDAQ:BIDU), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), Palo Alto Networks, Inc. (NYSE:PANW) is a highly popular stock that can offer great returns with its AI operations.
Adobe Inc. (NASDAQ:ADBE) is an application software company based in San Jose, California. It is offering a family of generative AI products on its creative products under the name of Adobe Firefly.
Our hedge fund data for the first quarter shows 99 hedge funds long Adobe Inc. (NASDAQ:ADBE). Their total stake value in the company was $7.3 billion.
Morgan Stanley analyst Keith Weiss upgraded shares of Adobe Inc. (NASDAQ:ADBE) from Equal Weight to Overweight on July 31. The analyst also raised his price target on the stock from $510 to $660.
Bailard Inc was the largest shareholder in Adobe Inc. (NASDAQ:ADBE) at the end of the first quarter, holding 47,068 shares in the company.
Polen Capital mentioned Adobe Inc. (NASDAQ:ADBE) in its second-quarter 2023 investor letter:
“On a relative basis, based on total attribution, the top performers in the quarter were Amazon, Netflix, and Adobe Inc. (NASDAQ:ADBE). Adobe has had several cross-currents this year with slightly slower revenue growth, the announcement of a sizeable potential acquisition of Figma, and the introduction of generative AI functionality into many of its products. These issues seem to be a net positive, although we are cautious about the company’s ability to achieve regulatory approval for the Figma acquisition. Generative AI also poses some potential competitive challenges for Adobe, which we will describe in more detail later.”
7. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Holders: 102
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was seen in the portfolios of 102 hedge funds in the first quarter, with a total stake value of $8.9 billion.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is another semiconductor company on our list. It is based in Hsinchu City, Taiwan. The company is expected to benefit from a rising demand for its chips amid the generative AI boom.
Charles Shi, an analyst at Needham, maintains a Buy rating on shares of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) as of July 21. The analyst also placed a price target of $115 on the stock.
Holding about 1.9 million shares in the company, Segantii Capital was the most prominent shareholder in Alibaba Group Holding Limited (NYSE:BABA) at the end of the first quarter.
An Outperform rating was reiterated on shares of Alibaba Group Holding Limited (NYSE:BABA) on July 17 by Colin Sebastian, an analyst at Baird. The analyst also maintained a price target of $115 on the stock.
Alibaba Group Holding Limited (NYSE:BABA) is a company providing tech infrastructure and marketing reach to help merchants, brands, retailers, and more in engaging with their customers. The company is based in Hangzhou, China. It has also launched its own generative AI tool, Tongyi Wanxiang, to stay in the AI race.
In the first quarter, 128 hedge funds were long Alibaba Group Holding Limited (NYSE:BABA). Their total stake value in the company was $5.9 billion.
