3 Stocks to Buy That Could Be the Next AI Powerhouse


  • AI stocks seem to be getting all the attention so far this year. Here are a few that have fallen through the cracks.
  • Alphabet (GOOGL, GOOG): The company runs the biggest search engine in the world and will eventually get AI right.
  • Baidu (BIDU): Baidu, also known as the “Google of China,” will be another beneficiary from AI.
  • Adobe (ADBE): Adobe is quietly using AI to help its customers improve their results.
AI stocks - 3 Stocks to Buy That Could Be the Next AI Powerhouse

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Artifical Intelligence (AI) stocks continue to dominate the discussion for investors. Given the rapid speed these technologies are moving, and the potential that they pack, it’s no surprise that is the case.

OpenAI’s ChatGPT platform exploded onto the scene a few months ago. It quickly garnered millions of users in record-breaking fashion. Next thing you know, Microsoft (NASDAQ:MSFT) is sinking billions of dollars into OpenAI and beginning to integrate the technologies into its platforms.

Everyone seems ready to crown Microsoft and Nvidia (NASDAQ:NVDA) the kings of AI, the latter builds the necessary technology to enable it.

However, there will be other winners from the revolution in artificial intelligence. Given that reality, let’s look at a few AI stocks that could be the next powerhouse in the space.

Alphabet (GOOGL, GOOG)

Closeup logo of Google.com website on an iPhone on wooden table. GOOG stock and Google layoffs
Source: Koshiro K / Shutterstock.com

Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) has not had a great start to the AI revolution. While the ChatGPT drama was unfolding in January, Alphabet was trying to fight off speculation and investors’ worries that its search engine would lose significant market share against new AI platforms and Microsoft’s Bing.

Those fears were exacerbated when Alphabet showed off its AI platform, which they called Bard, and it had a very obvious gaff.

That said, Google is the most popular website in the world and YouTube, also owned by Alphabet, sits in the number two slot. With the one-two punch of Google and YouTube, the company is likely to get AI right and apply it to its existing products, as well as incorporate it into all sorts of other avenues.

While the Alphabet is not getting much credit for its AI efforts now, it should pay off over the long term.

Lastly, while analysts expect modest revenue growth this year of 6%, earnings estimates call for 11% growth this year and nearly 20% growth next year. That’s pretty solid, especially at around 21 times earnings and given the balance sheet power of Alphabet.

Baidu (BIDU)

A concept image of a woman typing on her phone with a search engine over her

When looking at companies in China, there is an obvious pick in Alibaba (NYSE:BABA). Alibaba stock trades at a reasonably low valuation, has decent growth and dominates in the tech space. It’s working on its AI products and rolling out a “ChatGPT-style product called Tongyi Qianwen.”

However, I think Baidu (NASDAQ:BIDU) is a much smarter choice. Unlike Alibaba, Baidu hasn’t been under pressure from the Chinese government. Additionally they are not talking about breaking up their businesses, even if that does add value for Alibaba. Yet, like Alibaba, Baidu is working on its own AI solutions.

Baidu is known as the “Google of China,” and since Google isn’t allowed in China, that’s quite valuable. The company is the sixth-most popular website in the world and could clearly incorporate AI into its search platform, as well as its autonomous driving unit.

Further, there’s no shortage of growth here. For roughly 13 times earnings, investors comfortable with Chinese equities are buying a company that’s forecast to generate double-digit earnings and revenue growth this year and next year.

Adobe (ADBE)

A white and blue building with the Adobe logo is pictured in front of a blue sky
Source: JHVEPhoto / Shutterstock

For the last of my AI stocks, I wanted to go with a more under-the-radar name, Adobe (NASDAQ:ADBE).

Many investors think of Adobe as a PDF-generator, or a company that can help its customers build digital graphics. While that’s true, the company actually has built a much more robust cloud-based subscription service. It’s allowed Adobe to drastically expand both its top and bottom line and become a large-cap tech stock. Even with the drastic pullback in its stock price, the company still sports a market capitalization of roughly $175 billion.

The company has begun to use AI to “solve problems in content understanding (including images, videos, documents, audio, and more).” Further, it’s also leveraging AI for “recommendations and personalization; search and information retrieval; prediction and journey analysis; content segmentation, organization, editing, and generation.”

Three weeks ago, the company entered “the generative AI field, launching Firefly” and just added “AI-powered text-based video editing.” I’m sure Adobe has big plans for using AI and that more integration of the technology into their products is on the way soon.

On the date of publication, Bret Kenwell 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.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

Article printed from InvestorPlace Media, https://investorplace.com/2023/04/3-stocks-to-buy-that-could-be-the-next-ai-powerhouse/.

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