Machine learning has become one of the most transformative technologies of the 21st century, with the potential to revolutionize everything from transportation to healthcare. As machine learning adoption accelerates, investors have a tremendous opportunity to profit from this megatrend. However, not all machine learning stocks are created equal. Many fledgling companies boast about machine learning capabilities, but have nebulous use cases and unproven business models.
With that in mind, I believe investors should focus on more established machine-learning stocks with concrete traction rather than pursuing immature chatbot companies with questionable paths to profitability. On the other hand, the machine learning stocks on this list have moved beyond the hype and have integrated this powerful technology into their core products and services.
Thus, I believe the following three machine-learning stocks should be on every tech investor’s radar.
iRobot (IRBT)
iRobot Corporation (NASDAQ:IRBT) designs and builds consumer robots and is best known for its Roomba robotic vacuums. The stock has faced extreme volatility over the past year, with shares cratering from a peak of $133 to now trade at around $35 per share. This represents a massive 73% drawdown from the stock’s highs.
While iRobot’s business has faced headwinds from production and supply chain issues, much of the negativity appears priced into the stock at current levels. Revenue and earnings per share are expected to rebound solidly next year, with analysts forecasting 8% sales growth and losses being halved. Multiple Wall Street analysts see a significant upside for the stock, with the average one-year price target implying over 43% in potential gains.
With the stock trading at just 1-times forward sales, iRobot appears to have been excessively punished by the recent market selloff. While macroeconomic uncertainty persists, robotic vacuum demand has historically proven resilient through prior downturns. Plus, as AI and machine learning become more common and people grow less absorbed in chores, it is only natural to expect that Roombas or similar tech will be used for indoor cleaning.
As supply constraints ease, iRobot looks poised to reaccelerate growth. Innovative products like the Roomba j7+, and operating leverage provide a promising setup for the next bull cycle. Investors looking for deep value among beaten-down growth stocks should take advantage of the massive discount with IRBT stock.
AeroVironment (AVAV)
AeroVironment (NASDAQ:AVAV) is a leading developer of unmanned aircraft systems (UAS) and tactical missile systems for military applications. Its ultra-portable drones enable reconnaissance, surveillance, and communications for infantry and special forces.
AeroVironment has seen its stock soar recently amidst surging demand, with shares nearly doubling over the past year. The company posted blockbuster fiscal Q1 2024 results, with revenue up 40% and earnings per share tripling to $1, beating estimates by 70 cents. Its record $540 million funded backlog provides revenue visibility for years ahead.
The war in Ukraine has underscored the strategic importance of AeroVironment’s unmanned solutions. Switchblade tactical drones and Puma reconnaissance UAS have proven highly effective for Ukrainian forces. Thus, the conflict has led allied nations to significantly increase investment in cutting-edge drones and AI/autonomy capabilities where AeroVironment excels.
The company also continues to innovate, having recently acquired AI robotic control systems leader Tomahawk Robotics. This expands AeroVironment’s ecosystem with unmanned aircraft, ground robots, and sensing capabilities operating seamlessly together.
With its expertise in AI and leading technology, AeroVironment enjoys a first-mover advantage in the new paradigm for intelligent, interconnected unmanned systems. Its solutions are mission-critical for allied nations looking to modernize defense capabilities. Investors should capitalize on any pullbacks to build positions in this high-growth innovator.
Baidu (BIDU)
Baidu (NASDAQ:BIDU) is the leading Chinese Internet search provider. It operates China’s Google equivalent, along with a host of online products and services. After four years of rangebound trading, now may be the time for Baidu to finally break out.
The company posted stellar Q2 results, with revenue up 15% (8.8% converted to USD) and earnings per share surging 42% year-over-year. Online marketing continues to rebound post-pandemic, while Baidu’s AI cloud business turned profitable. Its earnings per share of $3.10 beat expectations by 76 cents.
However, Baidu’s most exciting growth driver is its industry-leading AI capabilities. Its ERNIE AI system integrates advanced natural language processing to enhance search, push personalized recommendations, and enable intelligent chatbots. Baidu is reinventing its consumer products to be AI-native, positioning itself for sustainable growth.
Despite these positives, Baidu trades at just 13-times forward earnings, a bargain for a tech leader of its caliber. If Baidu sees success commercializing its extensive AI research, the stock’s languishing valuation presents enormous upside potential. Bullish investors should take advantage of the negativity shrouding Chinese tech to build positions at an attractive entry point.
On the date of publication, Omor Ibne Ehsan 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.
