It appears artificial intelligence (AI) has gone viral.
"AI should increase the productivity of knowledge workers more than fourfold by 2030," predicts Cathie Wood, CEO of Ark Investment Management. The investment firm's Big Ideas 2023 report estimates that "If [AI] vendors were to capture 10% of [the] value created by their products, AI software could generate up to $14 trillion in revenue and $90 trillion in enterprise value in 2030."
Given the magnitude of these numbers, the AI market represents a massive opportunity for investors. Here are three top stocks to buy now to tap into this revolution.
Image source: Getty Images.
1. Nvidia
You can't make an omelet without breaking a few eggs, and you would be similarly hard-pressed to train and maintain AI systems without Nvidia (NVDA -3.33%). After cornering the market in state-of-the-art graphics processing units (GPUs) for gamers, CEO Jensen Huang saw the writing on the wall and repurposed its lightning-fast semiconductors to speed data through the ether.
Not only is Nvidia a staple in the biggest cloud computing and data center operations, it's also arguably the industry standard for self-driving cars. Yet the company continues to innovate at a breakneck pace, creating new and better systems for AI. Nvidia GPUs are optimized for running AI systems, fueled by parallel processing, or the ability to run a multitude of complex computations simultaneously.
Late last month, at the company's annual GPU Technology Conference, Huang acknowledged this pivotal time for the technology, calling it "the iPhone moment for AI." This was no doubt a nod to Apple's early disruption of the smartphone market.
In order to meet the challenge head-on, Nvidia announced the next generation of its H100 Hopper processor, which the company says is "an order-of-magnitude leap for accelerated computing." The chip is nine times faster for training AI models and up to 30 times faster for inference -- or the deployment of AI systems once they've been trained -- than its previous-generation A100 processor.
Nvidia's goal is to bring these large-language models -- like ChatGPT -- into the mainstream. The company's recent "gold rush" of new AI deals could be a game changer for Nvidia.
2. Palantir
When it comes to AI, data-mining specialist Palantir Technologies (PLTR -0.23%) has an impressive pedigree. The company is the go-to for U.S. government agencies and their allies, with AI-based software tools that can scour government intelligence databases to detect patterns and thwart would-be terrorists. The company has a 20-year head start on many AI-related companies.
But that's just the beginning. Palantir uses those same data-mining tools to empower businesses. Its tailor-made system can gather information from a variety of sources and creates a single interface to provide actionable information from otherwise-siloed data.
Palantir isn't resting on its laurels. Just last week, CEO Alex Carp announced that the company will soon launch its "new Artificial Intelligence Platform," or AIP. The plan is to combine its existing AI expertise with the types of large-language models that caused ChatGPT to go viral. The platform could be used to help predict the safety of drug candidates for human trials or help military units source supplies or plan for specific attacks.
Palantir will make this next-generation software available to both government and commercial customers, and the platform will be rolled out to select partners as early as next month.
The company recently turned profitable, and given its long history of successfully deploying AI, this latest move could ignite Palantir's next growth engine.
3. Tesla
As the world's largest electric vehicle (EV) maker, Tesla (TSLA 12.06%) might not be an obvious choice for a top AI stock, but sophisticated algorithms are at the heart of the company's aspirations.
All of Tesla's cars are equipped with a host of sensors and cameras that are constantly collecting a vast amount of driver and vehicle data, particularly with regard to the operation of its Autopilot Driver Assistance System. This data is then transmitted to the cloud and analyzed by its AI system.
The more data it consumes, the smarter the system gets. What it learns is transmitted to a growing fleet of Tesla vehicles, helping them all make better real-time driving decisions.
Wood calls Tesla "a hidden gem" of AI-related stocks, believing that the biggest beneficiaries of AI technology will be those companies with the largest proprietary data sets. In a recent interview, Wood said that Tesla has "the largest pool of real-world driving data in the world." She added that the company has "orders of magnitude" more of the kind of information that will become valuable in its future endeavors.
These reams of real-world data will put Tesla on the "pole position" to launch an autonomous taxi software-as-a-service (SaaS) business, which Wood calls a "winner-take-most" opportunity, and she sees Tesla in the driver's seat.
A word on valuation
You get what you pay for. With that as a backdrop, none of our trio of stocks is cheap in terms of traditional valuation metrics. Nvidia, Palantir, and Tesla are currently selling for, respectively, 17 times, 7 times, and 4 times next year's sales, when most experts agree that a reasonable price-to-sales ratio is between 1 and 2. Each will also continue to experience significant volatility over the near term, while the potential of AI plays out.
That said, the opportunity represented by AI is vast, and each of these companies is a key player in its respective industry, making these disruptors worthy of a premium.
If I had to pick just one, I believe Nvidia will likely be the biggest winner as we explore the future of AI as it barrels toward us like a runaway train. Fortunately, I don't have to pick -- I own them all.
