Artificial intelligence is bound to change the future of the world. By fiscal year 2025, the artificial intelligence market size is expected to be $390.9 billion. However, this number does not tell the whole story. By FY2030, the projected growth of global GDP as a result of artificial intelligence is expected to be $15.7 trillion. This projection bodes well for AI stocks.
Clearly, this is a game changing technology for the world. The impact of AI will be felt across industries. As an example, AI-powered autonomous vehicles have the potential to reduce road accidents. Similarly, AI can prevent 86% of cyber-attacks.
Further, as research article from Harvard Business Review suggests, AI-driven companies can outstrip traditional firms in the long-term. This makes the adoption of AI a necessity across industries.
Considering the potential for growth, there are several companies in the race to grab market share.
My focus is on the following three AI stocks that can make significant inroads in AI in the coming years. These companies are likely to be long-term value creators as business from AI grows. Furthermore, these companies will shape a better and safer world through their AI-driven innovation.
The following companies are on my investment radar:
Nvidia (NVDA)
The first on this list of AI stocks to buy is Nvidia. Even as NVDA stock trades at 52-week highs, its worth considering with the company making significant inroads into AI. In particular, I am bullish on Nvidia’s focus on autonomous cars and the healthcare industry.
Nvidia has already partnered with the likes of Audi, Mercedes-Benz, Toyota, Volvo and Volkswagen for autonomous vehicles. Besides the revenue upside that is likely from these partnerships, autonomous vehicles are expected to “reduce accidents, improve the productivity of trucking and taxi services, and enable new mobility services.”
In the healthcare segment, Nvidia is making big progress. As an example, Nvidia is already providing researchers with AI that can detect and study infected patients through chest CT scan data. Further, Nvidia also made advances in the medical imaging industry for early detection, diagnosis, and treatment of disease.
From a valuation perspective, NVDA stock is trading at a price-to-earnings-ratio of 46.99. However, the company’s earnings growth is likely to remain robust, justifying premium valuations. I therefore expect the stock to continue trending higher.
Baidu (BIDU)
The Senate passed a bill that could delist Chinese companies from the U.S. stock exchange. This created some jitters for Chinese-listed stocks. However, I believe that Baidu is among the quality AI stocks from China and can pass the stringent compliance.
Specific to AI, Baidu has been increasing investments in the segment, which promises to be a potential value creator for the company. Talking about the focus on AI, Baidu has filed 5,712 AI-related patents as of October 2019.
In the autonomous vehicle segment, the company has already deployed more than 100 vehicles in 17 cities in China. Baidu has also been using AI to help health organizations cope with the novel coronavirus pandemic.
From a financial perspective, Baidu reported cash and equivalents of $20.7 billion as of March 2020. This gives the company ample financial flexibility to pursue investments and innovation related to AI. I believe that the company is well positioned to accelerate top-line growth in the coming years. This makes BIDU stock attractive, coupled with the fact that the stock currently trades at a P/E ratio of just 15.3.
Alphabet (GOOGL, GOOG)
After a sharp downside during the coronavirus-triggered market meltdown, GOOGL stock has been trending higher. I expect this upside will remain as the company has multiple growth triggers.
AI is one of the areas where Alphabet has been trying to make significant inroads. Since FY2009, the company has acquired 30 AI start-ups for a total consideration of $4 billion. With ample financial flexibility, Alphabet is well positioned to pursue further inorganic growth.
In terms of developments in the AI business, Google Health, DeepMind, and Moorfields Eye Hospital have partnered to use AI to predict sight-threatening eye conditions. Similarly, Google AI is helping in forecasting earthquake aftershock locations with AI-assisted science.
These are just few examples of how AI promises to make the world a better place. With innovation-driven companies like Alphabet, the possibilities are endless. According to Sundar Pichai, CEO of Google and Alphabet “AI has great potential in reforming the world – from climate to healthcare.”
The word is that the world will no longer be the same after the coronavirus pandemic. One of the technologies that can bring a disruptive change for better is artificial intelligence. As AI grows, AI stocks and their respective companies will be significant value creators.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock-specific articles with a focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.
