The artificial intelligence (AI) market has grown like a weed in recent years as organizations gather and process more data to make smarter decisions. However, it can be difficult for investors to filter out the noise and recognize the best investments across this sprawling and fragmented market.
So today, I'll tune out that noise and highlight three stocks that offer investors a balanced approach to investing in the growing AI market: Nvidia (NVDA 2.33%), Salesforce (CRM 0.14%), and Netflix (NFLX 0.28%).
Nvidia is the world's largest producer of discrete graphics processing units (GPUs) for PCs. It also provides higher-end GPUs for data centers, where they help process complex machine learning and AI tasks more efficiently. GPUs can process a wide range of integers and floating-point numbers simultaneously, while traditional central processing units (or CPUs) only process a single piece of data at a time.
Many data centers now pair Nvidia's top-tier Tesla GPUs with Intel's Xeon server CPUs to crunch massive amounts of data for high-performance computing (HPC) applications. That trend, which is being driven by the growth of cloud-based services and mobile applications, has lit a fire under Nvidia's data center business.
In its latest quarter, Nvidia's data center revenue soared 71% year over year to $3.26 billion and accounted for 43% of its top line. It also grew at a much faster rate than its gaming revenue, which rose 37% to $3.42 billion. Nvidia attributed the growth of its data center business to the accelerating adoption of its GPUs across the hyperscale and cloud computing markets.
Nvidia's gaming GPU business faces concerns of a near-term slowdown as consumer demand for new PCs cools off in a post-lockdown market. Those near-term headwinds, along with the broader sell-off in tech stocks, caused Nvidia's stock to decline more than 20% this year.
However, I believe that pullback represents a good buying opportunity for patient investors who can look past Nvidia's near-term challenges and focus on its long-term growth potential in the AI market.
Salesforce is the world's largest customer relationship management (CRM) service provider. With its streamlined cloud-based platform, the company initially disrupted the industry for on-premise CRM software, which was difficult to scale as an organization expanded.
It has subsequently leveraged its dominance of the CRM market to launch additional cloud-based sales, marketing, e-commerce, and analytics services. Salesforce has made 20 major acquisitions over the past 14 years to expand that ecosystem and has launched additional features to lock in its customers.
One of those key features is Salesforce Einstein, an AI engine that processes a company's sales, service, and marketing data to deliver "more personalized and predictive" customer experiences. Salesforce has also integrated Einstein into its own app store, which enabled developers to build AI-powered apps that "get smarter" with every interaction.
Einstein directly complements its data visualization platform, Tableau, which it acquired back in 2019. While speaking about Moderna's usage of Einstein with Tableau in its latest conference call, Salesforce President and Chief Revenue Officer Gavin Patterson said the combination enables the pharmaceutical company to "analyze data across all departments and use predictive analytics to make better decisions."
Salesforce expects its annual revenue to nearly double from $26.5 billion in fiscal 2022 (which ended this January) to over $50 billion in fiscal 2026. That bullish outlook suggests Salesforce will remain one of the best ways to profit from the simultaneous growth of the cloud and AI markets.
Netflix isn't frequently mentioned in conversations about AI stocks, but its entire streaming video ecosystem runs on complex AI algorithms. It uses AI to personalize video recommendations for its viewers, green-light the production of new content, and even choose the ideal thumbnail images for videos to encourage users to click on more videos.
This massive AI fabric enables Netflix to launch original hit shows like Stranger Things, Squid Game, and Bridgerton without relying on big, established franchises. By comparison, Disney still relies heavily on its massive portfolio of properties -- which spans the Marvel, Star Wars, and Pixar cinematic universes -- to draw more viewers to Disney+.
Netflix's stock has declined by more than 40% this year amid concerns about its decelerating growth in a post-lockdown market and competitive headwinds. However, its shows are still dominating the streaming charts, according to Nielsen, while big institutional investors like Bill Ackman's Pershing Square remain bullish on the stock.
The next few quarters will likely be bumpy for Netflix, but I believe the streaming video leader will prove the bears wrong again as it taps its AI algorithms to create a new slate of hit shows. It also won't fade away anytime soon: It ended last quarter with 221.8 million paid subscribers, and it expects to add another 2.5 million subscribers in the current quarter.