The emergence of generative AI platforms like ChatGPT already has far-reaching implications for society and the economy. But this sector is already crowded. In addition to all the publicly traded companies in this sector, thousands of private companies are in the business of AI. That gives investors a lot to think about when they look for AI stocks to buy.
However, one thing seems clear. You can’t afford not to be invested in this sector. It feels like we’re at an inflection point with artificial intelligence. It’s similar to when dial-up internet became the world wide web that was accessible on your phone. And the adoption is taking place just as quickly. Bank of America analysts cite the adoption rate of ChatGPT is 10x faster than Instagram.
That’s how prevalent AI will become. But it’s already affecting our homes and businesses in ways we take for granted. Here are seven AI stocks that are excellent choices for long-term growth.
With its investment in OpenAI, the creator of ChatGPT, Microsoft (NASDAQ:MSFT), is getting the lion’s share of headlines in the AI sector. But that’s not the only reason MSFT leads this list of AI stocks to buy. Microsoft is not resting on its laurels but instead is investing in OpenAI to catch up on how AI is used in corporate applications.
To that end, the company is launching Dynamics 365 Copilot. This tool will be designed for applications businesses use for tasks such as sales, marketing, and customer service. If successful, the technology will greatly enhance the current automated chat experience that is available. Microsoft also appears to have plans to introduce AI into its Office software suite.
And, of course, Microsoft will be incorporating generative AI into its Bing search engine in an effort to wrest market share away from Alphabet (NASDAQ:GOOG, GOOGL), the parent company of Google.
Alphabet (GOOG, GOOGL)
Speaking of Alphabet, they are also among the best AI stocks to buy for long-term growth. The launch of ChatGPT is a shot across the bow of Alphabet’s 70% market share in search.
And the company is not taking the news lying down. Almost as soon as ChatGPT was launched, Alphabet announced it was introducing its own AI-equipped service, Bard. The launch wasn’t as successful as the company hoped for, but this is still an emerging technology; Alphabet has time to catch up.
Over the last few years, the tech giant has been stepping away from many of its moonshot projects. This should allow it to focus on artificial intelligence. Alphabet’s years of experience in deep learning will serve it well as it re-asserts itself in this sector.
And if investors need another reason to invest in GOOGL stock, here’s another one. By many metrics, it’s on sale. The stock has fallen over 24% in the last year and has a current P/E ratio of just over 21x, which is cheap for the tech sector.
The last of the big tech stocks to make this list of AI stocks to buy is Amazon (NASDAQ:AMZN). Through Amazon Web Services (AWS), the company has a long history of using artificial intelligence. And the benefit that the company has is the stickiness of AWS. That is, once a company is signed up and using the service, there is a barrier to entry.
Plus, whereas Microsoft is just entering the AI arena as it relates to business applications, Amazon is already there via its Amazon Lex service – which gives businesses the tools to create chatbots and voice-based virtual assistants. And the company also has Amazon Polly, which is a text-to-speech service. The company also has a history of investing in other AI companies and is likely to continue doing so.
Nevertheless, the stalling economy has negatively affected the company’s cloud computing business. And that’s not likely to change anytime soon. But this is a list of stocks with long-term potential. After dropping over 34% in the last 12 months, AMZN stock is starting to look attractive.
Nvidia (NASDAQ:NVDA) is on this list for two reasons. The company does have a portfolio of in-house AI solutions, including its Nvidia Launchpad program that “provides free, short-term access to a large catalog of hands-on labs in AI, data science, 3D design collaboration and simulation…”
The company is also a leading provider of the semiconductor chips and graphic processing units (GPUs) that other companies use to power their AI solutions. Because demand for this equipment will continue to grow, this is where a greater opportunity may exist for the company in terms of AI.
That being said, NVDA stock doesn’t come cheap, with a P/E ratio as of this writing of over 146x earnings. The stock has also recovered all of its 2022 losses and is now slightly ahead over the last 12 months. Still, analysts are bullish on the stock. And with an average of over 20% growth in earnings over the next five years to go with double-digit revenue growth, it’s easy to see why.
Cybersecurity is a sector that continues to grow even as the economy weakens. But some investors may not instantly make the connection that cybersecurity has with AI solutions. That’s the argument for SentinelOne (NYSE:S) in a nutshell.
SentinelOne’s Singularity XDR platform is powered by AI and provides autonomous capabilities for detecting and preventing threats and responses across endpoints and cloud workloads for businesses. And if the company’s most recent earnings report is any indication, strong growth is expected to continue. The company’s revenue nearly doubled year-over-year, and annual recurring revenue is up 88%.
One reason for that growth is that SentinelOne reports that new customers are up 50%. And customers that contribute over $100,000 in annual recurring revenue were up 75%.
Analysts give S stock a consensus price target of $21.80, which is a 43% upside from the stock’s current price.
iRobot Corporation (IRBT)
Regarding its stock price, you could question the inclusion of iRobot Corporation (NASDAQ:IRBT) on this list of AI stocks to buy. IRBT stock surged during the pandemic as revenue and earnings soared. But that trend has reversed, and so has the company’s stock.
However, Amazon is looking to acquire iRobot. But as of this writing, there is concern over whether or not that deal will be approved. The Federal Trade Commission (FTC) is preparing an antitrust suit against Amazon. This is part of the Biden administration’s objective to reign in the sprawl of big tech.
So what does this mean for IRBT stock? To my way of thinking, this is a heads they win, tales they still win scenario. If Amazon acquires the company, shareholders stand to benefit since Amazon is looking to buy the company for $61 a share. That’s well above the current share price.
And even if that deal falls through, iRobot will likely be on some company’s radar as the industry consolidates.
First Trust Nasdaq AI and Robotics ETF (ROBT)
A list like this can’t possibly cover how artificial intelligence will impact our world. Some areas that haven’t been addressed are health care and education.
But disruptive technology doesn’t necessarily equate to profitable companies. Therefore, one of the best ways to buy AI stocks is not to buy individual stocks at all. And that strategy means buying an ETF that focuses on artificial intelligence. One of the best options is the First Trust Nasdaq AI and Robotics ETF (NASDAQ:ROBT).
The fund has only existed since 2018 but has already grown to have over $221 million of assets under management (AUM). And the fund has an appealing expense ratio of just 0.65%.
The ETF is up about 15% in 2023 after falling over 35% in 2022.
On the date of publication, Chris Markoch 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.
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