The artificial intelligence (AI) revolution is picking up speed. Before we know it, AI will be part of our everyday lives. “We are at a pivotal point for its adoption today due to the availability of big data, high-powered computing and advances in algorithms — which all make AI cheaper and faster to implement,” says JP Morgan analyst Stacy Pollard.
She calculates that the AI-related hardware, software and services market could hit $58 billion by 2021 from just $12 billion this year. Indeed, market experts say artificial intelligence will lead the next wave of economic growth and productivity for at least the next couple of decades.
Here, I take a closer look at seven top stock ideas with big AI exposure. To find the best investing opportunities in AI right now, I pinpointed seven stocks with a “Strong Buy” consensus rating from the Street’s top analysts.
These are analysts with the highest success rate and average return. By limiting the ratings to only top analysts, I was able to cut out analysts with poor track records. These “Strong Buy” stocks are also more likely to have big upside potential. Of course, Nvidia Corporation (NASDAQ:NVDA) is a great AI stock, but it only has a cautiously optimistic Street outlook. For this reason I focus below on these more bullish stock picks.
JP Morgan recently pinpointed Facebook Inc (NASDAQ:FB) as one of its top 5 AI stock picks: “Mark Zuckerberg considers AI to be one of the company’s 10-year bets, and believes that AI should replicate — and exceed — human senses such as vision and hearing so that FB is better able to serve users. … FB is working on applying computer vision techniques to organize content and provide the ability to classify live videos in real time” the firm explained.
Five-star JP Morgan analyst Doug Anmuth assigned a buy rating and bullish $225 price target to FB last month (31% upside).
FB is not short of Street support; in fact, the stock boasts 28 buy ratings in the last three months alongside 1 hold rating and 1 sell rating. With an average analyst price target of $208.59, analysts are predicting upside of 21% from the current share price.
Also note that FB has just received its highest price target of $240 from MKM Partners’ Rob Sanderson. He cites FB’s “surprisingly strong Q3 topline” and says the consensus of an expense ramp looks overly aggressive.
Database giant Oracle Corporation (NYSE:ORCL) uses AI and machine learning across many parts of its cloud applications. Most notably, Oracle is now using AI and machine learning to automate administration of its latest Oracle Database 18c.
And with this new self-driving database technology, the company has created the world’s first autonomous cloud.
“This is the most important thing we’ve done in a long, long time,” states ORCL CTO Larry Ellison. “The automation does everything. We can guarantee availability of 99.995 percent, less than 30 minutes of planned or unplanned downtime.”
The cloud eliminates human labor, human error and the need for manual tuning.
This ‘Strong Buy’ stock has received 16 buy ratings and 3 hold ratings in the last three months. Given that the stock is currently trading at $48.40, the $59.22 average analyst price target translates into upside potential of 22%.
Drexel Hamilton’s Brian White has a buy rating and $62 price target on the stock. He believes the new innovations “can take the company’s cloud portfolio to a whole new level.”
Cloud communications app maker Twilio Inc (NYSE:TWLO) recently reported stronger than expected Q3 results and it had a better than expected Q4 outlook. As a result, analysts are feeling bullish on the stock’s potential to play catch up following a year of meaningful under-performance.
Top analyst Brian White says, “Based on our 2017 revenue estimate, Twilio holds less than 1% share of this $45.4 billion market and has a big opportunity ahead of it.” And part of this “catch up” could stem from the stock’s growing AI capabilities.
In October, Twilio announced the general availability of its Speech Recognition capabilities. This “enables users to convert speech to text and analyze intent during any voice call,” according to JP Morgan.
The firm adds that “Twilio’s Automated Speech Recognition uses Google’s Cloud Speech API, which supports various languages.” As a result, JP Morgan also lists Twilio as one of its top 5 AI stocks.
In the last three months, analysts have published 7 buy ratings and 1 hold rating on Twilio. These analysts are predicting (on average) big upside potential of TWLO of over 50% from the current share price. Given this potential, I believe this is a top stock to keep a close eye on over the next few months.
Palo Alto Networks Inc (NYSE:PANW), a next-generation security platform company, claims that effective machine learning can help prevent malware and protect endpoints.
“The most promising weapon in the endpoint security arsenal is machine learning, with its ability to quickly learn, make instant decisions and enable rapid response to prevent threats rather than dealing with them during execution or after the fact” PANW states in a report.
In light of this, PANW uses machine learning in Traps, its advanced endpoint protection solution. Traps is already drawing attention; CRN news named it the “Overall Winner & 2016 Product of the Year”.
Overall, Palo Alto has received 16 buy ratings and 4 hold ratings from the Street in the last three months. We can see that the average analyst price target of $173.89 suggests this stock has upside potential of over 20%.
Just recently, on Dec. 4, William Blair analyst Jonathan Ho upgraded PANW from hold to buy. He says the company can widen the “competitive gap” relative to peers.
Last week, Amazon.com, Inc. (NASDAQ:AMZN) held its much-hyped cloud conference AWS re:Invent 2017 in Las Vegas.
The company unveiled a host of new AI-based products, including Amazon Translate, a service for translating text from one language into another. Andy Jassy, the leader of Amazon Web Services, also highlighted how AWS is crushing its rivals in its breadth and depth of services.
Following the five-day event, analysts quickly ramped up their price targets. Five-star Oppenheimer analyst Jason Helfstein boosted his AMZN price target on Dec. 1 from $1,165 to $1,330 (upside of 17.3%).
He says: “AWS is now well positioned to be the platform company for IOT and democratizing AI … AWS’ dominance in serverless, global databases and AI is creating unique new services in an accelerated basis, driving unpredictable services/growth.”
Indeed, AMZN has one of the best ratings from the Street right now. This ‘Strong Buy’ stock has received an impressive 32 buy ratings and just one hold rating in the last three months. Meanwhile, the average analyst price target of $1280.80 translates into upside potential that’s close to 13%.
Google CEO Sundar Pichai has made a big deal of Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL ) “AI first” future. The company is pouring money into AI research and acquisitions, and the investment is paying off.
On Nov. 10, KeyBanc revealed its “Top 20 AI All-Stars” within the tech sector. One of the key mega-cap stocks on this list is Alphabet. GOOGL “implemented 1,600 algorithms to enhance search last year, with AI and machine learning being core to all new services going forward” says top KeyBanc analyst Andy Hargreaves.
One example? 100% of Google’s Chinese-English Translations are ML-powered. Google says this reduces errors by 55% to 85%. Another example? Google has just released a tool called DeepVariant that uses the latest AI techniques to map a person’s genome from sequencing data.
Hargreaves has a buy rating and $1,150 price target on the stock. Overall, we can see that Alphabet has received 22 buy ratings and 3 hold ratings in the last three months. These analysts are predicting (on average) that the stock can soar 15% from the current share price of $1,011 to $1,164.
Micron Technology, Inc. (NASDAQ:MU) is one of the world’s three biggest memory companies (Samsung and SK Hynix being the other two). Together these three companies control over 80% of the $122 billion global memory chip market at a time of worldwide memory shortage.
“We believe this global memory chip shortage is set to continue until the end of 2018, at the least” writes Cyrus Mewawalla, the managing director of CM Research. He says demand for DRAM chips and NAND flash chips comes from “new and powerful technology cycles” such as artificial intelligence and augmented reality.
For example, MU chips are used to power self-driving vehicles and help the car’s systems detect hazards on the road. Specifically, Micron says it is already shipping its fastest LPDDR4x memory to “multiple automotive customers,” enabling system bandwidth speeds of 100 GB per second.
MU has received 22 buy ratings versus just 3 hold ratings in the last three months. At the same time, the average analyst price target of $53.24 indicates upside potential of over 33%.
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