Artificial intelligence has taken the market by storm this year.
The launch of OpenAI's ChatGPT has opened investors' eyes to the potential for the new technology, and Microsoft CEO Satya Nadella has said that a new race has begun with generative AI tech.
AI stocks have become so buzzworthy that C3.ai, a software-as-a-service company focused on artificial intelligence, nearly doubled in January, and shares of Buzzfeed more than doubled in a single day after the company said it would use AI tools for some of its content.
While the hype around AI may be reaching a fever pitch, the technology does seem to be transformational, and there will likely be a number of winners. For now, the best move for investors looking to get exposure to AI seems to be with established mega-cap companies. Keep reading to see two stocks that fit the bill today.
1. Meta Platforms
Facebook parent Meta Platforms (META -10.56%) hasn't gotten as much attention in artificial intelligence as some other big tech stocks, but the company has been developing its AI capabilities for years.
For example, Meta uses AI in its discovery engine, which surfaces and recommends accounts and content for users on Facebook and Instagram to follow. Those AI tools are especially important in making Reels work, its short-term video product that competes with TikTok and relies on recommendations rather than follows.
It also uses AI to improve advertising conversions, saying that conversions improved by over 20% from a year ago, and artificial intelligence helps its engineers be more productive.
Meta is one of the few companies large enough to compete in AI areas like generative AI that will require multibillion-dollar investments. CEO Mark Zuckerberg said on Meta's recent earnings call that one of his goals for the company is to build it into a leader in generative AI.
Like Alphabet and other big tech stocks, Meta also has a number of AI experiments, including Galactica, the scientific research tool that it briefly released recently, and Cicero, an AI agent that can negotiate, persuade, and cooperate with people.
Finally, Meta stock is affordably priced at a price-to-earnings ratio of 19 based on this year's expected earnings. In other words, investors don't seem to be pricing in the potential impact of AI.
2. Nvidia
The artificial intelligence market is wide open, but one thing is clear: Running AI programs like ChatGPT takes tremendous computing power, and that will favor chipmakers like Nvidia (NVDA 3.71%), the company that invented the graphics processing unit, which is often used for artificial intelligence.
Nvidia announced in November that it was teaming up with Microsoft to build a massive cloud AI computer, a multiyear partnership that will take advantage of Microsoft's Azure cloud infrastructure and Nvidia's GPUs. The move should help ensure that Nvidia is a leader in making chips for AI applications.
According to analyst forecasts, demand for chips for ChatGPT and other generative AI tools is expected to add billions of dollars in revenue for Nvidia this year, and momentum could build as both Microsoft and Alphabet have announced their own chatbot tools. The industry seems poised to develop quickly, and Nvidia's strength in GPUs gives it a competitive advantage in the industry as it has the greatest expertise and range of chips.
Nvidia shares have surged this year, up 54% in part on optimism around the AI breakthrough, but the stock is still down substantially from its peak in 2021, indicating more upside potential, especially as the market for its products is expanding.
Like other chipmakers, Nvidia is suffering from the inventory glut in the industry, which has weighed on prices. Further, its gaming segment has been particularly weak as the pandemic tailwinds have faded. However, the next wave of AI has the potential to make Nvidia a big winner over the long run, especially given its competitive advantages in the sector.
