The hype surrounding generative artificial intelligence may have cooled from the frenzy seen at the start of this year. But make no mistake, AI stocks continue to be a major catalyst for the technology markets.
Market research firm Statista forecasts that the value of the AI stocks in the sector will increase twentyfold between now and 2030 to reach $2 trillion.
In the future, AI is expected to influence everything from the video games we play to the cars we drive and the healthcare we receive. Few areas of modern life will be untouched by generative AI.
The technology is still in its infancy. In the coming years, AI stocks should grow by leaps and bounds as the technology evolves in terms of its sophistication and capabilities.
Where we go from here is anyone’s guess. But artificial intelligence represents a huge new market that should help to lift stocks higher in the coming months and years.
These seven are the leading AI stocks in the pack.
Nvidia (NVDA)
Chipmaker Nvidia (NASDAQ:NVDA) is arguably the biggest beneficiary and market leader when it comes to the best AI stocks to buy.
The company controls between 70% and 80% of the global market for AI microchips. The supercomputer used by OpenAI to develop its generative AI technologies runs on 10,000 Nvidia graphics processing unit chips. And that’s just one computer.
To say that Nvidia’s microchips and semiconductors are in-demand is the understatement of the year.
Owing to surging demand, Nvidia’s last two earnings prints have been blockbusters. At the end of August, Nvidia reported that its revenue in Q2 more than doubled from a year earlier to $13.51 billion, and it rose 88% from the previous first quarter of this year.
The company also reported that its gross margins increased 25.3 percentage points to 71.2% during Q2 because of growth in its AI chip sales.
Management forecasts that sales in Q3 will grow 170% from a year earlier. NVDA stock has increased 216% this year and is up 635% over five years.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) is a clear leader in the AI arms race that is now underway.
The Seattle-based technology giant is working with OpenAI to further enhance the capabilities of ChatGPT and its predecessor GPT-4, and also plans to integrate AI into other areas of its business, from its Azure cloud computing unit to its Xbox video games.
MSFT stock has not been a huge beneficiary of the hype surrounding AI this year. So far in 2023, Microsoft’s share price has risen 38%. Compare that to the 217% gain in NVDA stock since January.
Analysts speculate that Microsoft’s shares have been held back by lingering uncertainty related to its $68 billion acquisition of video game maker Activision Blizzard (NASDAQ:ATVI). However, in time, MSFT stock can be expected to run sharply higher.
Advanced Micro Devices (AMD)
While Nvidia remains the AI leader in the microchip and semiconductor space, controlling 70% of the global market, Advanced Micro Devices (NASDAQ:AMD) is closing the gap.
Over the last two years, AMD has taken important market share from Intel (NASDAQ:INTC), nearly doubling its share of the Data Center segment.
AMD’s share of the AI market is expected to grow even further with the release of its new AI microchip called the “MI300X.”
The MI300X is AMD’s biggest push into AI yet and is a direct challenge to Nvidia’s chips.
The MI300X uses 192 gigabits of memory, which means it can accommodate bigger AI models than other chips, notably Nvidia’s rival H100 chip that supports 120 gigabits of memory.
AMD’s management team has said that AI represents a strategic growth opportunity for the company, and that the MI300X chip has been designed specifically for large language models and other generative AI applications. AMD stock is up 67% ytd.
Taiwan Semiconductor Manufacturing Co. (TSM)
Shares of Taiwan Semiconductor Manufacturing Co. (NYSE:TSM) having been trading sideways over the past six months (down 0.03%) after the company posted soft financial results and on geopolitical concerns that China may one-day invade Taiwan, whose territory it claims as its own.
However, investors shouldn’t count out the world’s largest chip maker. The company remains the top producer of the world’s most advanced microchips, semiconductors, and processors, accounting for 60% of the global supply.
Taiwan Semi produces nearly all the AI chips designed by Nvidia, AMD and others. Taiwan Semiconductors importance to the global chip and AI industries cannot be overstated.
Unfortunately, in its most recent earnings print, the company posted its first profit decline in four years as demand for consumer electronics weakens worldwide. Regardless, demand for the fabrication of AI chips remains sky high, and the company’s guidance for Q3 revenue of $17.5 billion is in line with analyst forecasts.
TSM stock is up 20% so far in 2023.
Alphabet (GOOG/GOOGL)
The code red issued concerning AI within Google parent company Alphabet (NASDAQ:GOOG/NASDAQ:GOOGL) remains in effect.
The company behind the popular search engine is moving quickly to not only rollout its own AI chatbot, called “Bard,” but also integrate AI into its other technologies and applications.
Most recently, Alphabet announced that it is adding generative AI technology to its suite of digital assistants and smart home devices.
The same technology that underpins Google’s Bard chatbot is also being used in its digital assistant software.
People can now give their digital assistants and connected home devices voice prompts to carry out increasingly sophisticated tasks such as setting timers and making hands-free phone calls on behalf of their owners.
The company is also adding generative AI to its work applications such as Gmail and Google Docs, and its Pixel smartphones and Android operating system. GOOGL stock has gained 56% this year.
Adobe (ADBE)
Adobe (NASDAQ:ADBE), the software company behind Photoshop, Illustrator and PDF, has gone all in on AI.
The company recently introduced a new suite of generative AI products that position it as a clear leader in the space and should be a boon to future earnings.
The launch of Adobe Firefly this past spring has already proved to be a big hit for the company. Firefly, which uses AI to turn text prompts from users into images has already been used to produce more than two billion pictures, according to the company.
Adobe is now looking to raise the prices on its various AI features and planning to increase prices by 8% to 10% for its creative cloud plans starting on Nov. 1.
Analysts have praised Adobe’s aggressive push into AI, saying the moves the company is making are already paying dividends. And the company has made clear that it plans to continue introducing new AI tools and enhancements for consumers to take advantage of in the coming months and years. ADBE stock is up 57% year to date.
Marvell Technology (MRVL)
Another microchip and semiconductor company that has a big opportunity in AI is Marvell Technology (NASDAQ:MRVL).
In fact, MRVL stock rose more than 30% at the end of May when management highlighted the company’s potential AI catalyst during an earnings call.
The company is seeing strong demand and earnings growth, driven in large part by the application of AI across its various business segments.
Marvell recently beat Wall Street expectations with its Q2 print, reporting a profit of 33 cents per share on sales of $1.34 billion beating analyst estimates.
Management has stressed that they see AI being a big catalyst for the company and stock in the years ahead. The strong earnings and expectations for AI have MRVL stock trending higher.
Since January, MRVL stock has gained 52%, bringing its five year gain to 203%.
On the date of publication, Joel Baglole held long positions in NVDA, GOOGL and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
