With new advancements in computer technologies and utility, several tech stocks soared on the implications for the broader artificial intelligence trend. In particular, the ability of AI and machine learning protocols to meet users where they are – that is, to speak their (human) language – sparked intense curiosity. Essentially, we may be standing on a paradigm shift.
Just by the numbers alone, the artificial intelligence trend compels onlookers to pay close attention. According to Grand View Research, the global AI market stood at a valuation of $136.55 billion last year. Between 2023 and 2030, the segment may expand at a compound annual growth rate of 37.3%, culminating in a sector revenue of $1.81 trillion. To their credit, several companies are taking the initiative, attempting to stay atop of the artificial intelligence trend. Below are seven compelling stocks to consider.
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On the surface level, content streaming giant Netflix (NASDAQ:NFLX) ranks among the top entertainment players, not one banking on the broader artificial intelligence trend. However, to stay ahead of the curve, Netflix deploys AI tools to enhance the consumer experience. Specifically, it uses deep learning protocols to understand subscribers’ likes and dislikes. From there, Netflix recommends appropriate content.
To be fair, NFLX stock represents a risky proposition among enterprises focused on the artificial intelligence trend. For much of 2022, it suffered steep losses before trudging much higher over the past few months. Still, despite a strong performance so far this year, in the trailing 365 days, NFLX gave up 12.4% of equity value.
Nevertheless, from an operational perspective, Netflix delivers the big guns. For instance, its three-year revenue growth rate stands at 16.2%, outpacing nearly 84% of its peers. Its net margin pings at 14.21%, also above 84% of the industry. Finally, Wall Street analysts peg NFLX as a consensus moderate buy. Therefore, it’s an interesting idea among companies playing the artificial intelligence trend.
IBM (IBM)
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Historically, IBM (NYSE:IBM) forged a reputation for undergirding leading technologies of the 20th century. However, in the current century, “Big Blue” fell behind the innovation curve, relying too heavily on its legacy businesses. Now, those days are long gone, with the company forwarding significant advancements in cloud computing. However, it’s also become a big-time player banking on the artificial intelligence trend.
Predominantly, IBM garnered its AI cred based on its Watson platform, which features the ability to answer questions posed in natural language. Also, news broke recently that Big Blue has been running an AI supercomputer, developing and training large-scale AI models.
As an investment, IBM stock should garner significant interest among bargain hunters. That’s because the market prices shares at a forward multiple of 14.16. As a discount to earnings, IBM ranks better than 80.1% of the competition.
Finally, Wall Street analysts peg IBM as a consensus hold, which might not sound that enticing. However, their average price target stands at $143.56, implying nearly 6% upside potential. Combine that with its forward yield of 4.87% and Big Blue offers a compelling take.
Microsoft (MSFT)
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As an all-around relevant market idea, Microsoft (NASDAQ:MSFT) fits into almost any investment-related discussion. However, the software (and hardware) giant has been making significant inroads into the broader artificial intelligence trend. Specifically, the company heavily backed AI technology research and deployment firm OpenAI. Of course, OpenAI generated news recently for its chatbot ChatGPT.
The main benefit undergirding ChatGPT centers on its ability to answer questions via natural language. Further, Microsoft launched a new version of its search engine Bing with ChatGPT integrated into it. Theoretically, this should make the platform much more useful.
If so, the news should only add to Microsoft’s financial strengths. According to Gurufocus.com’s proprietary calculations for fair market value, MSFT rates as modestly undervalued. Objectively, the company enjoys significant strengths in the operational department. Both its long-term revenue trend and especially its trailing-year net margin rank above their respective sector median values.
Currently, covering analysts peg MSFT as a consensus strong buy. Further, their average price target stands at $291.07, implying an upside potential of 10.63%.
Deere (DE)
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On the surface, mentioning Deere (NYSE:DE), which specializes in agricultural equipment manufacturing, on a list of companies banking on the artificial intelligence trend seems somewhat ludicrous. I mean, this is a type of company that former President Donald Trump praised. After all, Trump’s a builder. Seeing him program an AI protocol would be bizarre, to say the least.
However, Deere has gone well ahead of the artificial intelligence trend in its industry. In the 2022 edition of CES, Deere introduced a tractor that “…has six pairs of stereo cameras that capture images and pass them through a deep neural network – that then classifies each pixel in approximately 100 milliseconds and determines if the machine continues to move or stops, depending on if an obstacle is detected.”
Financially, DE makes a lot of sense for investors thinking about the long term. Both the company’s three-year revenue growth rate and its trailing-one-year net margin rate above their respective sector median values. Plus, Wall Street believes that DE is a moderate buy. As well, its consensus price target of $482.89 implies an upside potential of 15.58%.
SentinelOne (S)
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Unfortunately, the focus on the artificial intelligence trend doesn’t just center on positive, productive endeavors. With increased digitalization comes nefarious actors, which brings us to SentinelOne (NYSE:S). Specializing in cybersecurity, SentinelOne brings plenty of relevance to the table.
Cybercrimes are only increasing in scope and magnitude. In 2022, the average data breach cost $4.35 million. For the biggest enterprises, the consequences of a breach can be massive, thus necessitating advanced protection schemes. What distinguishes SentinelOne is its deployment of behavioral AI protocols. Essentially, its system can sift through mountains of data to identify legitimate threats. From there, it can also respond without needing human oversight.
While SentinelOne features incredible relevancies regarding the artificial intelligence trend, it’s a risky financial narrative. Basically, prospective investors will be banking on an aspirational framework. Still, to add some confidence to the picture, Wall Street analysts peg S stock as a consensus moderate buy. Also, their average price target stands at $19.65, implying an upside potential of nearly 29%.
Alphabet (GOOG, GOOGL)
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As one of the biggest tech firms in the world, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is all about AI. Most notably, AI-related initiatives center on its Google ecosystem, particularly its branded search engine. Indeed, because of rising competition from Microsoft and its integration of ChatGPT, Alphabet must dig deeper. Fundamentally, I don’t see that as a problem. If I may be blunt, only losers complain about competition. Alphabet ain’t no loser.
Further, what makes Alphabet special in the broader artificial intelligence trend is that it aims to use innovation for the greater good. From promoting greater worldwide access to critical technologies to developing protocols to forward environmental sustainability, Alphabet’s at the forefront of making the planet a better place.
Per Gurufocus.com’s proprietary FMV calculations, GOOG represents a significantly undervalued investment. Objectively, its long-term revenue growth rate and its trailing-year net margin rank above their respective sector average values. Finally, Wall Street analysts peg GOOG as a consensus strong buy. As well, their average price target stands at $124.60, implying 31.35% upside potential.
Lemonade (LMND)
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Fundamentally, the insurance business might not seem like a relevant arena for progressing the artificial intelligence trend. However, Lemonade (NYSE:LMND) plies its trade in the burgeoning segment of insurance technology or insurtech. Mainly, Lemonade provides critical financial protection for its subscribers. It just does it in a convenient manner that its target audience (millennials, Generation Z) natively understands.
What makes Lemonade unique at the moment is that its interactions with its customers are 100% digital. This means no brokers and no middlemen. Theoretically, it also means that once the business matures, Lemonade can pass down savings to its customers. That would probably make the way insurance is done today obsolete. Further, Lemonade incorporates AI to conduct complex processes such as risk assessment and underwriting policies.
To be fair, investing in LMND presents significant risks. Undoubtedly, it’s an aspirational play. About the only standout positive for the company at the moment centers on its balance sheet stability. Not surprisingly, the consensus among analysts pegs LMND as a hold. However, they also target shares hitting $23.25, implying a massive 43.7% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
