The global artificial intelligence market could grow at a whopping compound annual growth rate of 46.2% between 2019 and 2025, according to Grand View Research, becoming a $391 billion market. Investors who want to profit from that market, which spans a wide range of hardware, software, and services, should take a closer look at three tech giants that are expanding their AI portfolios: NVIDIA (NVDA 0.76%), Apple (AAPL -0.57%), and Baidu (BIDU 1.24%).
1. NVIDIA
NVIDIA (NVDA 0.76%) is mainly known for its gaming GPUs, but the chipmaker also produces high-end GPUs for data centers. These GPUs can generally process AI tasks faster than stand-alone CPUs.
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NVIDIA's data center revenue rose 80% annually last quarter, to $1.14 billion, or 37% of its top line. It attributed that explosive growth to "broad-based" demand across its hyperscale and vertical industry customers, which are using its GPUs for AI and high-performance computing (HPC) applications.
NVIDIA's new A100 data center GPU, which is up to 20 times more powerful than its predecessor, also started generating "meaningful" revenue shortly after its launch last quarter, according to the company. Its acquisition of networking company Mellanox, which closed in late April, will also continue the expansion of its data center unit.
In the auto market, NVIDIA's ARM-based Tegra CPUs power infotainment units and driverless cars. Its auto revenue declined 7% to $155 million in the most recent quarter, or 5% of its top line, due to macro headwinds -- but it could rebound with the broader automotive industry as car companies upgrade their in-car technologies.
NVIDIA's core gaming GPU business remains its core growth engine, but the strength of its data center business -- which already serves cloud giants like Amazon, Microsoft, and Alphabet's Google -- makes it a solid play on the AI market.
2. Apple
Apple generates most of its revenue from the iPhone and other hardware devices, so it usually isn't considered an AI play. However, Apple quietly acquired over 20 AI companies over the past decade, according to CB Insights, topping the number of AI acquisitions by Google, Microsoft, and Facebook. Apple even hired Google's AI and search chief, John Giannandrea, in 2018.
Unlike Google and Facebook, which use AI to craft targeted ads, Apple's growing list of AI acquisitions -- which includes Siri in 2010 and the computer vision company RealFace in 2017 -- mainly focused on adding new features to the iPhone.
Image source: Apple.
Apple's recent acquisition of Xnor.ai, which runs image recognition tools locally instead of in the cloud, could add better face-tracking capabilities to the iPhone without compromising users' privacy. Integrating Xnor.ai's edge AI engine with Apple's own first-party Bionic chips, which also process AI tasks with its neural engine, could enable its devices to process other AI tasks offline.
Looking further ahead, Apple could integrate its AI technologies to connected cars via CarPlay, the digital healthcare market via apps on Apple Watch, and the augmented reality market through its ARKit platform.
Apple certainly isn't a pure play on the AI market, but improving AI technologies will strengthen its hardware and software, while strengthening the "walled garden" that surrounds its high-growth services segment.
3. Baidu
Baidu (BIDU 1.24%), which owns the largest search engine in China, generates most of its revenue from online ads. However, all the data it accumulates from users -- along with its expansion into virtual assistants, smart speakers, and driverless cars -- have turned it into a powerhouse in the AI market.
Baidu's DuerOS processed 6.5 billion monthly voice queries in March, nearly tripling from a year earlier, and hosted over 3,800 "skills" across a wide range of industries. In the natural language processing field, Baidu's ERNIE (Enhanced Representation through Knowledge Integration) AI model recently beat Google's BERT (Bi-directional Encoder Representations from Transformers) model in a closely watched competition in natural language processing.
Over a hundred auto and tech companies have joined Baidu's Apollo platform for driverless cars, and it's already deployed over a hundred autonomous vehicles across 17 cities in China. All those AI investments aren't generating meaningful revenue for Baidu yet, but they'll expand its search ecosystem well beyond the saturated PC and mobile markets.
Baidu's stock has declined about 30% over the past three years, due to concerns about competition in the ad market from nimbler rivals like ByteDance, its growing dependence on its unprofitable streaming video subsidiary iQiyi for revenue growth, and the disruptive growth of monolithic apps like Tencent's WeChat.
Baidu needs to address all those challenges, but its ambitious AI investments should widen its moat and strengthen its business. Investors who buy Baidu before those growth engines kick in could be well rewarded.
