How to invest in ai in 2024
Every investor aims to seize early opportunities in the upcoming major trends. Currently, artificial intelligence, commonly known as AI, represents the forefront of this trend.
Investing in AI today mirrors the decision-making process of investors during the late 1800s when they were confronted with the rapid expansion of railroads. They had the option to invest directly in railroad stocks or choose companies whose businesses thrived due to railroads, such as textile manufacturers and beef processors that could transport their products to ports more efficiently and economically.
One of the challenges in investing in AI lies in the limited availability of pure-play AI investment options in the market. Consequently, we have explored various methods through which you can invest in companies and funds that are reaping the benefits of the AI boom.
What Is AI? Why Is It Popular Now?
AI, or artificial intelligence, is a technology that aims to replicate human problem-solving and decision-making abilities using computers, machines, and software. This concept has gained immense popularity recently, particularly with the release of ChatGPT by OpenAI in November 2022. ChatGPT is a chatbot service that engages in natural language conversations, providing comprehensive answers to a wide range of questions.
However, AI is not a new field but has evolved over decades since its inception in the 1950s. The term "artificial intelligence" was first coined in 1956 by John McCarthy and Marvin Minsky during the Dartmouth Summer Research Project on Artificial Intelligence.
Looking beyond history, analysts from PricewaterhouseCoopers predict that AI innovations could significantly boost global GDP by up to 14% by 2030. This potential growth has led many to see AI as the most substantial commercial opportunity in today's rapidly changing economy.
Important factors to consider before investing in AI
We mentioned IBM with purpose. You may be familiar with IBM Watson, the question-and-answer system that defeated two Jeopardy champions back in 2011. IBM laid the foundation for Watson's development in the 1950s and has been actively researching artificial intelligence (AI) for over 70 years. It was during the mid-20th century that AI made significant strides, shaping both early and contemporary computing.
Understanding this history is crucial when considering investments in AI companies for a couple of key reasons:
AI has been in existence for decades, even though it recently gained widespread attention with the rise of ChatGPT. Despite its long history, AI adoption is still in its early stages. Research conducted by Wisdom Tree, an investment firm, reveals that transformative technologies such as automobiles, color televisions, and smartphones didn't instantly become ubiquitous. It typically takes years, if not decades, for a technology to reach 80% or more of households. Thus, although AI appears substantial today, we are likely only beginning to tap into its full potential.
How to Invest in AI
Today, there are diverse avenues for investing in AI. One approach is purchasing shares in publicly traded companies engaged in AI software development and hardware manufacturing for AI applications. Another option is exploring the growing field of exchange-traded funds focused on artificial intelligence enterprises.
Investing in AI-Driven Companies
While individual stock investments carry higher risk compared to fund ownership, they also offer potential for greater returns. Here are insights into three top-performing AI stocks currently available:
Microsoft (MSFT): CEO Satya Nadella has emphasized Microsoft's strong commitment to AI, with initiatives like integrating ChatGPT into the Bing search engine through a partnership with OpenAI. AI integration in Microsoft 365, the cloud-based suite of office tools, enhances user experiences in applications like Word, Excel, and email management. MSFT shares have seen a significant 40% increase year to date.
Nvidia (NVDA): Known for producing computer chips powering various applications from 3D graphics to medical imaging, Nvidia's chips have gained popularity for running AI algorithms effectively. The company's shares have surged by over 200% year to date, reflecting its strong presence in AI-related technologies.
C3.ai (AI): Specializing in AI solutions implementation, C3.ai caters exclusively to AI-driven services for its clientele. Clients such as Shell, Koch Minerals, Ball, and the U.S. State Department leverage C3.ai's services for enhancing reliability, fraud detection, network monitoring, supply chain optimization, and energy management. While C3.ai shares have experienced an impressive 250% surge year to date, it's important to note the stock's historical price movement, which currently stands at 70% below its 2020 all-time high.
In summary, investing in AI presents diverse opportunities, ranging from established tech giants like Microsoft to specialized AI-focused companies like C3.ai, each offering unique advantages and considerations for investors.
The 6 Best AI Companies
Nvidia Corp. (NVDA)
Nvidia, a top-tier chipmaker, supplies the immense computational power essential for operating sophisticated AI applications. Its exceptional performance on the stock market in 2023, ranking as the top-performing stock within the S&P 500, is primarily attributed to its significant involvement in AI. The soaring demand for Nvidia's top-of-the-line AI chips resulted in a remarkable 265% revenue surge and a staggering 768% increase in net income during the fourth quarter. Analyst Jim Kelleher highlights Nvidia's substantial early advantage in the AI semiconductor design sector. Despite the substantial rise in its stock value, Kelleher believes Nvidia's shares still have substantial potential for further growth. Argus maintains a "buy" rating and sets a target price of $850 for NVDA stock, which concluded trading at $822.79 on March 1st.
Alphabet Inc. (GOOG, GOOGL)
Alphabet, the parent company of Google and YouTube, leverages AI and automation across all aspects of its operations, encompassing ad pricing, content promotion, and Gmail spam filters. In March 2023, Google introduced its Bard AI chatbot, followed by the announcement of Gemini in December, heralded as its most advanced and versatile AI model to date. However, Alphabet faced backlash recently when a new AI image-generation feature produced inaccurate depictions of historical figures' races, leading to a temporary halt. Despite this setback, Bonner emphasizes Google's strong position as a leader in generative AI development. Argus maintains a "buy" rating and sets a $170 price target for GOOGL stock, which closed at $137.14 on March 1st.
Amazon.com Inc. (AMZN)
Amazon has seamlessly integrated artificial intelligence (AI) across its entire operation, encompassing targeted advertising, marketplace search optimization, recommendation algorithms, and Amazon Web Services (AWS). The company provides a comprehensive suite of AI and machine learning services to its AWS cloud clients, offering advanced functionalities such as text analytics, automated code reviews, and chatbot development. In a recent development, Amazon introduced a new AI tool designed to assist customers with inquiries regarding products available on its marketplace. Analysts note that AWS stands out as a frontrunner in the emerging AI-as-a-service market, bolstered by Amazon's substantial $4 billion investment in Anthropic. With a positive outlook, Argus has assigned a "buy" rating and set a $185 price target for AMZN stock, which closed at $178.22 on March 1st.
Meta Platforms Inc. (META)
Meta Platforms is a dominant force in the social media and online advertising sectors, holding ownership of popular platforms like Facebook and Instagram. Reports suggest that Meta is in the process of developing a cutting-edge AI system designed to rival the most advanced models from OpenAI. In January, Meta announced that its AI technology has contributed to a 32% increase in return on investment for advertisers on average. Bonner, a notable figure in the industry, asserts that Meta remains competitive in generative AI technology and is committed to integrating and enhancing AI capabilities to drive operational efficiency. Argus, an investment research firm, has assigned a "buy" rating to META stock with a price target of $550, while the stock closed at $502.30 on March 1st.
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM)
Taiwan Semiconductor Manufacturing, the world's largest pure-play semiconductor foundry, is at the forefront of producing cutting-edge AI semiconductors for industry leaders like Nvidia and other AI chipmakers. Despite challenges in smartphone and electric vehicle demand, Taiwan Semi recently announced an optimistic outlook, projecting a 20% revenue growth in 2024, fueled by the strong demand for high-end AI chips. Analyst Kelleher attributes this demand surge to generative AI technologies and identifies Taiwan Semi as the top choice for investors seeking exposure to merchant fabrication opportunities. With a favorable valuation reflecting its promising long-term growth prospects, TSM stock holds a "buy" rating from Argus, with a target price of $130, compared to its closing price of $133.90 on March 1.
Adobe Inc. (ADBE)
Adobe is known for developing creative content software and various applications essential for marketing and e-commerce. Their Firefly generative machine learning model has been attracting customer attention across platforms like Photoshop, Illustrator, and others. In addition, Adobe has integrated its Sensei AI and machine learning technology into products such as Adobe Analytics, Campaign, and Target.
During the CES 2024 conference held in January, Adobe's VP of Generative AI mentioned the company's strategic shift from being primarily a software company to becoming more focused on AI technologies. Bonner emphasized Adobe's commitment to increasing investments in generative AI features.
Argus, a financial analysis firm, has given Adobe a "buy" rating with a price target of $675 per share. As of March 1, Adobe's stock closed at $570.93.
