Artificial intelligence (AI) is an umbrella term for the use of computer vision, machine learning, and natural language processing to empower machines to do things that usually require human intelligence. It has the potential to enhance productivity, precision, and creativity in various sectors. For instance, AI can already strengthen cybersecurity systems, streamline production, and even help in detecting human illnesses.
Medtronic (MDT 0.62%) and Arista Networks (ANET -0.02%) are two large-cap companies using AI to enhance their operations. Medtronic is a leader in medical devices, such as pacemakers, insulin pumps, and surgical robots. Arista is a leader in cloud networking solutions, such as switches, routers, and software. Both companies are expected to benefit from the boon in AI in the years ahead.
Which of these AI stocks is the better buy right now?
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Medtronic: Improving Patient Outcomes with AI
Medtronic is a global leader in medical devices, offering products and services for a wide range of conditions, such as diabetes, cardiac arrhythmias, chronic pain, and neurological disorders. The company leverages AI to improve the quality, safety, and efficiency of its devices and solutions.
For example, Medtronic integrated an AI algorithm into its LINQ II ICM wireless cardiac monitors, which are implanted devices used to monitor cardiac performance in patients with known rhythm abnormalities. This tech is designed to reduce false alerts from the device for both atrial fibrillation (a rapid rhythm in the upper chambers of the heart) and asystole (a long pause between heartbeats).
Medtronic also employs AI to enhance its Hugo robotic surgery system, which assists surgeons in performing minimally invasive procedures. The company uses AI to enable its surgical robots to provide real-time feedback, guidance, and assistance to surgeons during surgery. This application can help improve the accuracy, precision, and speed of the surgery, as well as reduce the learning curve for new surgeons.
What does its stock offer prospective shareholders? Medtronic sports a strong dividend history, a fair valuation, and a solid growth outlook. The company's annualized dividend yield of 3.17% is attractive for income investors, and its 45-year record of dividend hikes shows its commitment to rewarding loyal shareholders.
Its forward-looking earnings multiple of 17.2 is also reasonable for the premium-laden medical-device industry. Additionally, the medical-device giant is expected to generate low-single-digit top-line growth over the next several years. However, its push to integrate AI into its diverse family of products may fuel additional revenue growth by opening up entirely new markets.
Arista Networks: Powering Cloud Networking with AI
Arista is a global leader in ultra-fast cloud networking solutions, offering products and services for data centers, cloud providers, enterprises, and campuses. Arista leverages AI to improve the performance, reliability, and security of its network infrastructure and applications.
For example, Arista uses AI to monitor and analyze network traffic and health across its switches, routers, and software. By applying machine learning and big data analytics, Arista can detect and diagnose issues, optimize network configurations, and automate network operations. This process can help reduce downtime, improve efficiency, and lower costs.
Another example is Arista's cognitive Wi-Fi solution, which is a cloud-based platform that delivers intelligent Wi-Fi services for enterprises and campuses. Arista uses AI to enable its Wi-Fi solution to automatically adapt to the changing environment and user demands. This unique, AI-based solution can drastically improve Wi-Fi coverage, capacity, and quality of service.
Arista also uses AI to enhance its security solutions, such as its CloudVision-as-a-Service platform. The networking giant employs AI to enable its security platform to provide real-time visibility, threat detection, and response across the network. This security package, in turn, can help prevent cyberattacks, mitigate risks, and comply with regulations.
What does its stock offer? Arista is a pure-play growth stock. As such, the networking specialist doesn't offer a dividend right now.
On the valuation front, Arista's stock is a tad pricey at 26 times projected earnings. This premium valuation may be warranted, however. Arista is on track to generate double-digit top-line growth over the course of 2023 and 2024. The company also stands to benefit enormously from the rapidly growing demand for the ultra-high-speed networking solutions required by AI.
Verdict
Medtronic and Arista are both leading AI companies that offer long-term value for investors. However, if I have to pick one, Medtronic has the edge over Arista.
Medtronic has a reliable dividend program, a reasonable valuation, and an AI-driven growth strategy that ought to boost its stock performance in the future. Arista is also a strong candidate as an AI stock but is not as appealing as Medtronic from a valuation standpoint.
