To say that artificial intelligence (AI) has been a catalyst for technology stocks is a major understatement. A new report from venture capital firm Accel found that U.S. technology companies have seen $2.4 trillion added to their market capitalizations this year from the hype and expectations surrounding generative AI. Accel’s analysis found the share prices of the biggest U.S. technology firms have risen an average of 36% so far in 2023 — much of that thanks to AI. Accel’s report also found that cloud computing and software-as-a-service (SaaS) companies such as Salesforce (NYSE:CRM) and Palantir (NYSE:PLTR) are also benefitting from expectations surrounding AI, and have seen their stocks increase an average of 29% this year.
Given that AI technologies are widely considered to still be in their infancy, investors can expect big growth and sizable returns moving forward. Here are seven AI stocks that will change the world and create many millionaires in the process.
Baidu (BIDU)
Chinese tech firm Baidu (NASDAQ:BIDU) has just come out and claimed it has developed a generative AI system that matches the technology used in the ChatGPT and GPT-4 chatbots. Analysts and investors are taking the claims seriously given that Baidu is widely regarded as China’s leading AI developer. And, until now, the AI systems coming out of China have paled in comparison to those produced by U.S. firms such as OpenAI. Baidu CEO Robin Li said at a public presentation recently that the company’s newly released ERNIE 4.0 chatbot “stands on par with GPT-4 in terms of overall performance.”
The latest chatbot from Baidu is currently available to invited users only, though the company plans to roll it out more broadly in 2024. The previous version of Baidu’s ERNIE chatbot was ranked as the best among China’s tech companies based on its algorithm and development tools, according to market research firm IDC. News that a new version of the ERNIE chatbot is available and could rival the most advanced American technologies has come as a bit of a surprise given the stricter government controls placed around the development of AI within China. This development suggests Baidu might be further ahead than many U.S. companies in developing AI.
BIDU stock has risen 28% over the last 12 months.
Nvidia (NVDA)
What more can be said about microchip and semiconductor powerhouse Nvidia (NASDAQ:NVDA) at this point? The company is the hands-down leader when it comes to AI and technology powering chatbots, large language learning models and supercomputers. OpenAI, the privately held company behind ChatGPT, is now considering making its own microchips because it can’t get Nvidia chips fast enough. That’s how great the demand is for Nvidia’s technology right now.
Meeting the skyrocketing global demand for its chips and semiconductors is the main challenge facing Nvidia. It’s also why the company’s financial results have been crushing Wall Street expectations, why NVDA stock has tripled so far this year and is up more than 650% over five years. Many analysts and industry observers say that how far AI ultimately goes will largely depend on how powerful Nvidia’s future chips and semiconductors become. Any investor wanting to capitalize on the growth of AI should own NVDA stock.
Alphabet (GOOG, GOOGL)
Since its initial public offering in 2004, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) has created generational wealth for many investors. An investment of $15,000 in the company’s stock on its Aug. 19, 2004 IPO would be worth $1 million today. Going forward, Alphabet’s shares are likely to continue outperforming due in large part to the current catalyst the company has in AI. From its DeepMind research unit to the Bard chatbot and its smart home devices, Alphabet is pushing the envelope when it comes to AI. And the company is only starting to monetize the new technology.
Alphabet’s leadership position in AI is beginning to reflect in the company’s share price, which has gained 57% year-to-date and is starting to pull ahead of other mega-cap tech stocks like Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL). Analysts seem to be in agreement that Alphabet is among the best-positioned companies to benefit from future advances in AI. Unlike many AI companies, Alphabet is involved in all aspects of the technology, from the theory behind its development to its practical applications. GOOGL stock should respond accordingly.
Advanced Micro Devices (AMD)
While it’s not as big a beneficiary of AI as Nvidia, Advanced Micro Devices (NASDAQ:AMD) is a dark horse in the race for artificial intelligence supremacy among microchip and semiconductor companies. Over the last two years, AMD’s share of the Data Center segment, including the graphics processing units (GPUs) used to power AI models such as ChatGPT and GPT-4, has nearly doubled to $1.3 billion. And, AMD is about to release a new AI microchip called the MI300X that many analysts see as a game changer. The MI300X marks AMD’s biggest push into AI yet and is a formidable rival to Nvidia’s strong AI microchip — the H100.
At the same time, AMD is getting closer to Microsoft and the two companies are forming strategic alliances for developing future AI technologies. Microsoft is increasing its use of AMD’s chips, and AMD is starting to develop chips specifically for Microsoft’s use. The two tech titans could form a strong future alliance. All of this activity is helping to power AMD’s financial results higher. The company is scheduled to report its third-quarter earnings on Oct. 31. AMD expects full production of its MI300X microchip to ramp up now, with sales reflected in its earnings prints beginning in early 2024.
AMD stock is up 64% this year and up 344% over five years.
Microsoft (MSFT)
Investors can’t currently buy shares of privately held OpenAI, the company that ushered in this year’s AI boom with the launch in November 2022 of ChatGPT, which some analysts refer to as the AI “Big Bang” moment. However, investors can do the next best thing — buy Microsoft stock. The software company invested $10 billion in OpenAI and has been aggressively capitalizing on the technology, adding it to its Bing search engine, as well as to video games and cloud computing. Microsoft is more closely associated with OpenAI than any other company.
Microsoft is continuing to push the bounds of AI forward, already using it to help healthcare companies make sense of their mountains of data. Many analysts say the AI catalyst is not yet reflected in MSFT stock, and there is plenty of upside ahead for stockholders. The median price target on Microsoft’s share price is currently $400, implying a 20% upside from current levels. The other thing that distinguishes Microsoft from other tech companies is its size and diversity. While AI offers the company a huge new market, it is only one area of strength. Microsoft is also a leader in video games, cloud computing and software. MSFT stock is up 39% so far in 2023.
Taiwan Semiconductor Manufacturing (TSM)
The strategic importance of Taiwan Semiconductor Manufacturing (NYSE:TSM) to the world of AI, and the world at large for that matter, cannot be overstated. As the largest microchip and semiconductor foundry, Taiwan Semiconductor is responsible for making over 60% of the world’s supply of advanced microchips, semiconductors and processors. The company’s strategic role provides it, and Taiwan, with what’s called a “silicon shield.” It’s been estimated that a Chinese blockade of Taiwan would disrupt over $2 trillion in economic activity by severing the primary source of advanced chips and semiconductors from global supply chains, crippling the tech industry in the process.
Companies ranging from Nvidia to Apple rely on Taiwan Semiconductor, as do most governments. Without its foundry business, advancements in AI technologies would grind to a halt. As such, TSM stock is a very good one to own. Even Warren Buffett praised Taiwan Semiconductor as one of the world’s best-run companies. While Buffett sold most of his stake in TSM stock over geopolitical concerns, he said he continues to greatly admire the company’s operations and the wide competitive moat around its business and stock. TSM stock is up 43% over the last 12 months and has risen 137% over five years.
Meta Platforms (META)
What metaverse? For Meta Platforms (NASDAQ:META), it is now all about AI. The company, led by Mark Zuckerberg, has pivoted hard this year towards AI and largely abandoned its previous plan to create a digital realm known as the metaverse — a place consumers would access through its virtual reality headsets. While the headsets still figure into the company’s plans, they are more likely to gain access to AI applications than buying a virtual house in the virtual world. At the company’s Meta Connect developer conference held in September, it was all about AI.
At the conference, Meta unveiled several generative AI chatbots and announced other AI technologies aimed at positioning the company as a competitor to OpenAI and especially Alphabet. Zuckerberg also announced that Meta Platforms is launching a text-to-image platform called Emu that will be available across several apps, and adding AI photo editing tools to its Instagram social media platform. Plus, Meta recently introduced a new AI Studio platform that enables developers to build their own AI chatbots. META stock has increased 160% this year.
On the date of publication, Joel Baglole held long positions in NVDA, MSFT, AAPL and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
