One of the best ways to invest for longer-term growth is to identify massive, ground-shifting developments. Once you identify these, find companies which are set to become leaders in the new market.
Technology is one of those sectors which tends to present many new developments. These companies mint billionaires from founders and make millions more for the savvy individual investors who get into them early. And one of the big new-new things in technology is Artificial Intelligence stocks, or AI.
AI is a big blanket of technology and application. Even some of the most mundane bits of mechanicals can be called AI. Take most modern transmissions in cars. Transmissions used to be dumb. They shifted in pre-determined patterns if automatic — or merely followed the shifts from manual inputs from drivers. But today’s automatic units including from ZF (a public-private company in Germany) have learning capabilities which adapt, learning how the driver of the car operates.
Then there is the example that I use on a daily basis involves artificial intelligence (AI). I have a Bloomberg Terminal, which is a vital tool for pulling all sorts of data and information on any economy, market or security. But it also comes with over 2,700 journalists around the globe generating news and other stories each and every day.
But interestingly, Bloomberg has adopted AI which combs basic company news releases as well as economic data releases and other basic news and lets its army of robotic writers do the work which increasingly provides a larger percentage of its posted stories.
Nothing yet subjective in the robotic writing — but you never know how this will develop. By the way, I am not a robot.
But AI has a lot further to go. It can and will lead to autonomous cars and new medical and surgical treatments, as well as design of goods and a host of other applications. This also includes trading of stocks, bonds and other securities. But like for any newer, developing and evolving technology, AI has a lot than can go wrong for individual companies. So, I’ll present some artificial intelligence stocks that are proven in their capabilities and will be there for the longer run. And to boot, they also pay dividends.
Artificial Intelligence Stocks to Buy: Hercules Capital (HTGC)
Hercules Capital (NYSE:HTGC) is based in the U.S. tech mecca of Palo Alto, California, with offices around the nation. It focuses on working with technology companies and has a good track record of financing startups that become bold-faced names in the tech market. The company makes loans and provides other financing, and it also takes equity participation in its portfolio companies. It then works with them like bankers used to do by guiding them along to an exit strategy of being bought or through an IPO.
It has numerous hardware and software companies that are part and parcel of the AI sector.
Its net interest margin (NIM) which is measure of the cost of funding against interest earnings is ample at 8.9% and the efficiency ratio is good at 52.5% (the lower the ratio, the greater the profitability). Revenues are up 8.8% for the trailing year. That feeds a nice annual dividend stream, including regular special distributions, yielding around 10%.
It is a proven performer — including for the year to date, with a return so far of 18%, before you count in the dividends.
Microsoft (NASDAQ:MSFT) is a major provider of all sorts of software and services which are mission critical for AI. The company offers software and systems which are used to design and operate AI components and whole systems. And to make AI truly work — particularly with remote devices, including autonomous cars — you need cloud computing. And Microsoft is currently the second largest cloud company with its Azure services unit.
The company continues to move to further its reformation as the poster child for successful tech companies. It’s moving from one-off hardware or software sales to recurring revenues from subscriptions as well as contract sales.
Revenues are climbing, gaining 14% in the trailing year. Operating margins are fat at 34%, and in turn, these drive a return on equity of a whopping 42.4%.
The dividend is a bit less at 1.34% but the distributions continue to rise, with five-year annual gains at 10.44%.
And the stock market continues to recognize its very real performance, with the Microsoft stocki price gaining 37% year to date.
Yes, Ma Bell. AT&T (NYSE:T) is also vital for AI. Sure, chip makers might get a lot of the attention. But just like for Microsoft, it is the mainstream companies that provide the guts for AI to operate. And as Hercules provides the next up-and-comers’ products, Ma Bell and its wireless services will make them all be able to get access to data to operate.
The company is the leading wireless communications company and provides fixed-line data communications for data centers and cloud operations. It also has cable and satellite transmission and content units, including Warner Brothers. Warner Brothers, of course, provides AI engineers with visions of what could be from science fiction films and series.
Revenues are a little tamer for now, gaining 6.4% in the trailing year. But operating margins are good at 15.3% which makes for a good return on equity for a big company at 9.5%.
The dividend is running at a whopping 5.5% and the distributions keep rising year in and year out by an average of over 2% per year.
And thanks to more in the market figuring out what’s under the hood of the company including some activist investment funds – the shares have returned 39.08% year to date.
Digital Realty Trust (DLR)
As noted above in Microsoft, cloud computing is vital to AI. And to make the cloud work, you need massive data centers everywhere.
This is where Digital Realty Trust (NYSE:DLR) comes in.
This is a real estate investment trust (REIT) which owns data centers around the U.S. and in major markets around the world where AI is being developed and implemented. And data centers are hard to quickly replicate — making the assets of the REIT all the more valuable.
Revenues are up in the trailing year by 23.9%. And the return from its funds from operations (FFO), which measures the return just from the actual revenues from its properties, is a very high for a REIT rate of 16.40%.
And like for REITs in general, the dividend is higher than the general stock market at 3.38%. It has been on the rise just over the past twelve months by 7.32% in distribution amounts.
Digital Realty Trust is also a good performer for shareholders with a total return for just the year to date of 23.04%. That is right on track with the returns over the past 10 years at 330.91% for an average annual equivalent return of 15.72%. And one more word on that nice dividend. Thanks to the Tax Cuts & Jobs Act of 2017 and a particular line item, the dividend comes with a 20% deduction for individual investors from their income tax liability, making the yield even higher on a tax-equivalent basis.
Those are my picks for artificial intelligence stocks with proven companies with less risk and attractive dividends. Perhaps you might like to see more of my market research and recommendations for further safer growth and bigger reliable income. For more, look at my Profitable Investing. Click here to learn more.
Neil George was once an all-star bond trader, but now he works morning and night to steer readers away from traps — and into safe, top-performing income investments. Neil’s new income program is a cash-generating machine…one that can help you collect $208 every day the market’s open. Neil does not have any holdings in the securities mentioned above.