5 Red-Hot Machine-Learning Stocks to Buy

Advertisement

machine-learning stocks - 5 Red-Hot Machine-Learning Stocks to Buy

Source: Shutterstock

When it comes to the broad artificial-intelligence market, there are a lot of sub-segments which are extremely valuable. But, the one AI sub-segment that is often deemed most valuable and has been most broadly used by companies both big and small is machine learning.

Machine learning is exactly what you think — the process of machines learning. The novelty in this process is that machines learn without being explicitly programmed to learn, so machines essentially learn on their own. This is possible by implementing machine-learning algorithms, and then feeding the machine a bunch of data so that it learns, grows and becomes more advanced.

If it sounds a little science fiction, that is because machine learning is arguably the point where science fiction converges on reality. And if you think about all the cool things that are possible in science fiction with machines and robots, those are the things that machine learning enables.

As such, it isn’t hard to see that machine learning is a potentially huge market oozing with hyper-growth potential. The market has come a far way since 2013 (machine learning patents have grown at a 34% annualized rate since then), but still has a long ways to go (machine learning spend is expected to increase by nearly five-fold over the next several years).

When you have a big-growth space like machine learning, there promises to be a few huge winners. Fortunately, specific to the machine learning world, it looks like those winners are obvious in the early going.

Who are those obvious winners? Take a deeper look to see the top 5 machine-learning stocks to buy now for huge growth over the next several years.

Nvidia (NVDA)

Machine-Learning Stocks To Buy: Nvidia (NVDA)

Source: Shutterstock

When it comes to machine-learning stocks, the cream of the crop is Nvidia (NASDAQ:NVDA).

The chipmaker has established itself as the king of all things AI. Through its advanced chips, Nvidia provides the building blocks for essentially every next-gen technology, from cloud data-centers to self-driving to AR/VR, so on and so forth.

Naturally, then, Nvidia has simultaneously developed a suite of deep-learning and machine-learning chips which power the whole machine learning industry. In so doing, Nvidia has become the fuel which powers machine-learning progress. Thus, if the machine-learning market progresses as it is expected to, it will do so because of advancements in Nvidia chips.

The two are forever intertwined. As goes the machine-learning market, so goes Nvidia. As goes Nvidia, so goes the machine-learning market.

Owing to its robust exposure to AI and machine leaning, Nvidia stock is a long-term winner. The valuation isn’t nonsensical at 33X forward earnings. The technicals look good with the stock in a solid uptrend and constantly holding its 200-day moving average over the past three years. Revenue growth is big. Margins are roaring higher. Profits are soaring.

Overall, Nvidia stock is a winner. You want to own this stock for the long haul. The strategy is to simply hold, and add on significant dips.

Amazon (AMZN)

Amazon (AMZN)

Source: Shutterstock

While Nvidia provides the building blocks for machine learning, Amazon (NASDAQ:AMZN) takes those ML building blocks and, well, builds something. Indeed, there really aren’t any machine-learning stocks out there which rival Amazon in terms of real world-applications.

Machine leaning has its fingerprints across Amazon’s entire ecosystem. In the e-commerce business, Amazon uses machine learning to optimize consumer convenience through improving search recommendations, lowering prices with a dynamic pricing model and increasing delivery times with accurate inventory forecasts.

Meanwhile, on the product front, Amazon uses machine-learning algorithms to power its AI voice assistant, Alexa, which now finds itself in a host of Amazon hardware products. The company’s drone initiative, Prime Air, leverages machine learning to deliver packages. And the company’s cashier-less offline stores, AmazonGo, utilize machine learning to create stores with no checkout and no lines.

In other words, no matter where you look at Amazon, you will see machine learning. It essentially powers everything Amazon does and gives the company competitive advantages over peers.

Much like Nvidia stock, Amazon stock is a stock to own for the long run. The valuation is big, but growth is bigger. And, the stock is on a solid uptrend that simply refuses to break. The strategy with Amazon stock is the same as the one with Nvidia stock. Hold for the long haul, and add on significant dips.

Alphabet (GOOG, GOOGL)

Alphabet (GOOG, GOOGL)

Source: Shutterstock

The only other company that really comes close to Amazon in terms of real world applications of machine learning is Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).

The digital search giant is one of the top machine-learning stocks in the market. Much like Amazon, machine-learning fingerprints are everywhere you look at Alphabet. The search engine is powered by machine-learning-based algorithms, and those algorithms being superior to peer algorithms is what has allowed Google search to maintain dominance in the digital search world. Meanwhile, Google Cloud is powered largely by machine learning, and the company has even used it to cut data-center operating costs by reducing energy use.

The more nascent use-cases of machine learning at Google are happening in the company’s smart-home and self-driving businesses. These have allowed Alphabet to become a viable competitor to Amazon in the smart home and voice assistant markets. Meanwhile, machine learning has powered Waymo, Alphabet’s self-driving unit, to a leadership position in the autonomous driving industry.

Google stock is pretty cheap considered its broad exposure to and dominance in a hyper-growth space like machine learning. The stock trades at just 25X forward earnings. Yet, revenue growth was 26% last quarter, and profit growth was in excess of 30%, and that is before the Waymo catalyst arrived.

In other words, this is a big-growth stock trading at a big discount. Much like Nvidia and Amazon, Google stock is a long-term winner. But, I think it deserves more exposure in a portfolio given its relatively cheap valuation. 

Apple (AAPL)

Apple (AAPL)

Source: Shutterstock

When market observers think of machine-learning stocks, consumer electronics hardware giant Apple (NASDAQ:AAPL) isn’t traditionally what they think of first.

But Apple is indeed one of the market’s best machine learning stocks.

Behind Google and Amazon, Apple is arguably third in terms of real-world applications of machine learning. The biggest application is in the iPhone. The new generation of iPhones are all powered by machine learning. New features like advanced voice assistant, face ID, camera sensors and AR capability? All of that is powered by machine learning.

Apple is also using machine learning in its other hardware products, like Apple Watch and HomePod. Over the next several years, Apple will increasingly integrate the technology into its robust ecosystem of consumer hardware products. Those integrations will increase the appeal of Apple products … and provide a nice lift to sales. They will also allow Apple to raise prices, and will presumably power margins higher, too.

Big takeaway? Deeper integration of machine learning into Apple products will provide a meaningful tailwind to profit growth over the next several years. At less than 20X forward earnings, AAPL isn’t priced for this tailwind. As such, while this is yet another long-term winner, Apple stock is also a buy here and now because of its relatively cheap valuation.

Netflix (NFLX)

Netflix (NFLX)

The least obvious of the machine-learning stocks on this list is Netflix (NASDAQ:NFLX).

When investors think of Netflix, they normally think of the Netflix streaming platform. And when investors think of the Netflix streaming platform, they think of the company’s original content. Thus, to most investors, Netflix is a narrative centered almost entirely around original content.

That consensus belief isn’t wrong. But what powers Netflix’s original content? After all, isn’t it odd that Netflix went from never having produced content before to dominating the Emmys in just five years? What is the Netflix secret sauce?

It is machine learning. Netflix has over 100 million subscribers. All those subscribers are watching content through Netflix. They are are also all browsing through titles and searching for different types of shows and movies. Netflix logs all that data. They then feed that data into a machine learning algorithm. The output is that Netflix is able to understand what 100-million-plus people want to see, based on search and viewing history.

Netflix then creates content based on that output. It is a genius strategy that has worked seamlessly for the past several years. It will continue to work. No one comes close to rivaling Netflix’s sub base. Thus, no one comes close to rivaling the volume of search and viewing history data Netflix has. Without that, no one can really compete with Netflix on data-driven content production.

Netflix stock is expensive. It is the least attractively valued stock on this list. But, the uptrend in the stock right now is very healthy, and the long-term growth narrative is promising. Put those two together, and I think this stock heads higher from here in the near-to-medium-term.

As of this writing, Luke Lango was long NVDA, AMZN, GOOG, AAPL, and NFLX. 


Article printed from InvestorPlace Media, https://investorplace.com/2018/09/5-red-hot-machine-learning-stocks-to-buy/.

©2024 InvestorPlace Media, LLC