Making sense of the artificial intelligence (AI) market can feel like solving a brain-teaser puzzle. Some companies seem to have a clear path to long-term success in this explosive field, making positive strides with impressive innovation and strong fundamentals. Others, however, are losing their way in this the maze of rapid technological change.
That's especially true in 2023, as the time-tested AI arena suddenly emerged from a fairly low-profile supportive role to hog the global spotlight. This sea change will separate the wheat from the chaff, and you don't want to get stuck holding stocks on the wrong side of that line.
Today, I'm spotlighting two AI stocks that look like surefire winners in the long run, and one that seems a bit lost right now.
What's not to love about Alphabet's AI chops?
Google and its parent company, Alphabet (GOOG 0.32%) (GOOGL 0.37%), are hardly newbies when it comes to artificial intelligence. In fact, we're talking about a firmly established pioneer and leader in the field.
I mean, AI is all over the place in Google's operations. You might recall the AlphaZero platform, which took the basic rule books of chess and Go, spent 24 hours playing those games against itself, and then emerged as a top-performing computer system for playing those games. That was 6 years ago and I think we're about to see what else Google's AI experts have been cooking up since then.
Think about it. Maybe you rely on Google Translate at work, or for sending emails to your in-laws, cousins, and friends overseas. That's an artificial intelligence system, quite similar to the large language model used by ChatGPT and Google Bard.
Or maybe you used Google Maps to track traffic congestion on the way to work this morning. That's another AI solution, where Google's systems track the positions of millions of users and then analyze that information in the context of historical data trends.
And have you noticed how Google Photos lets you search your digital pictures by location, people in the image, main colors, and much more -- but you never had to add any of those tags yourself. Yep, that's AI again.
Most of these diverse AI features tie back into the overarching LaMDa platform, which is comparable to OpenAI's GPT but with subtly different goals and abilities.
Of course, Google is not the only tech giant to work on AI features like these, but it's hard to beat the company's wealth of experience. And not only that, Alphabet also has a stronger commitment to doing the right thing than most of its rivals. Once upon a time, Google co-founders Sergey Brin and Larry Page said that they wanted Google to be "a platform for good." In their view, business results would follow from simply providing useful products and services in a responsible way.
So far, that vision has helped Alphabet grow into one of the world's largest businesses with a $1.5 trillion market cap and $285 billion of annual revenue. Today, Alphabet isn't just chasing the potentially lucrative consumer market but also devoting significant AI efforts and resources to improving healthcare, fighting climate change, and more.
Long story short, investing in Alphabet lets you do well and do good at the same time. Some people see AI as a threat to Google, but it's really just another tool right there in the company's extensive tool belt.
Adobe paints a pretty AI picture
When looking for a powerful AI company, it's easy to overlook Adobe (ADBE 2.02%). The maker of creative productivity tools like Photoshop, Premiere Pro, and After Effects may not seem like a leading provider of digital brains.
But that's a mistake. There's more to Adobe than meets the eye, even if you apply a ton of Photoshop filters.
As you might guess, that deep portfolio of handy tricks includes a powerful AI system. Let's say "Konnichiwa" to Adobe Sensei!
Sensei is Adobe's equivalent of Google's LaMDA platform. But where LaMDA focuses on generating helpful text, Sensei was built to process, analyze, manage, and create images.
The system can automate many parts of the creative process, from correcting color palettes and 3D perspectives to smoothing out animations and creating music remixes for you. And when your project is ready for publication, Adobe Sensei can analyze your creations and set up suitable marketing campaigns around them.
This AI toolkit is built into every part of Adobe Creative Cloud, Document Cloud, and Experience Cloud, helping the company present a portfolio of coherent AI assistance.
How powerful are Adobe's AI tools? Well, Google recently announced image-generating features for its Bard chatbot. Rather than resting on its own considerable expertise in this field, it tapped Adobe's Firefly instead. That's a central piece of the Sensei GenAI portfolio. Yes, you see a pattern here. Both Google and Adobe are making the most of the powerful platforms at the center of their respective AI strategies.
So you should not walk past Adobe on the hunt for promising AI investments. Sensei wants to have a word with you.
C3.ai is the odd robot out
Every hopeful AI competitor can't be the winner you're looking for. Right now, C3.ai (AI 3.84%) is probably not the artificial intelligence investment you're looking for.
Don't get me wrong -- I have nothing but respect for C3's enterprise-scale AI solutions. From oil and gas producers and defense contractors to banks and transportation networks, this company has endless collections of AI-based tools to analyze that industry's business data.
That's a perfectly sensible business model, but probably far from the consumer-oriented excitement you expected. The company's market buzz skyrocketed in recent months, riding the coattails of ChatGPT and Google Bard discussions.
But we're comparing navel oranges to harmonic oscillators.
Google and Adobe offer ultra-flexible tools that are equally at home in a massive data center and on your smartphone. C3.ai helps other companies build the unique AI apps they need in their daily operations and strategic planning.
Again, there is nothing wrong with that and C3's business results are quite respectable. But this is not a thrilling story of top-line hypergrowth and soaring bottom-line profits. C3's revenue growth is flattening out in 2023 while earnings and free cash flows are growing more negative over time. Still, the stock price has more than doubled year-to-date while Alphabet's gains stopped at 35% and Adobe's at 3%.
C3.ai may be a solid success story in the long run. However, its stock valuation seems wildly inflated at the moment and the imbalance looks like a simple misunderstanding. You should come back and take another look at C3 when the overheated stock ticker has cooled down a bit.
