As we navigate the dynamic realm of artificial intelligence (AI), five companies are leading the way in shaping the booming technology's future.
Nvidia (NVDA +2.59%), International Business Machines (IBM 2.71%), Amazon.com (AMZN +2.05%), Alphabet (GOOG 0.21%) (GOOGL 0.41%), and Microsoft (MSFT 0.60%), with its $13 billion investment in OpenAI, represent the forefront of this technology's course-setting early days.
Each tech giant brings a distinct set of AI innovations and contributions, highlighting the varied ways machine learning and generative AI are transforming our world. Their importance to the immediate future of AI -- and of technology in general -- is undeniable. But should you invest in all of these AI trendsetters in November 2023?
Here's what I think.
Alphabet: leading AI research and applications
Alphabet's Google division is at the forefront of AI innovation, from Google Assistant's natural language processing to AI services offered through Google Cloud. Google's DeepMind subsidiary, known for breakthroughs like the AlphaGo and AlphaZero board game engines, continues to expand the possibilities of AI in learning and problem-solving. Google Translate is an example of AI technology too, powered by a deep learning engine and a neural network interface.
NYSE: IBM
Key Data Points
IBM: from Watson to healthcare
IBM's AI journey, marked by the creation of Watson, illustrates its long-term commitment to the field. Watson's natural language processing abilities, showcased in the "Jeopardy!" game show in 2011, have since been applied in various domains, particularly in healthcare for diagnosis and treatment assistance. IBM's ongoing AI research ensures their continued influence in AI's future. Big Blue keeps a sharp focus on business-to-business services, leaving the consumer-facing AI ideas for other companies to explore.
Microsoft's large OpenAI investment
Microsoft's investment in OpenAI, creators of advanced AI models like the GPT-4 chatbot and the DALL-E 2 image generator, highlights its dedication to AI's forefront. This partnership brings cutting-edge AI technology into Microsoft's suite of products and services, positioning the company as a pivotal player in ethical AI development and large-scale model implementation.
NASDAQ: NVDA
Key Data Points
Nvidia: powering AI with GPUs
Chip designer Nvidia, initially a powerhouse in graphics processing units (GPUs) for gaming computers, has evolved into an AI juggernaut. Its GPUs have evolved to support the parallel processing needs of deep learning systems and the engine-training part of machine learning platforms. Together with the CUDA coding platform, Nvidia's AI processors have become essential tools in AI research and development. Nvidia's technology underpins much of today's AI, driving advancements in machine learning and deep learning.
The company doesn't stand alone and a plethora of chip designers are working on AI-specific processors these days, but Nvidia does have a head start. This is the default AI chip provider to beat until further notice, and that's a powerful value booster.
Amazon: integrating AI in commerce
Amazon showcases its AI expertise through consumer-facing products like Alexa and its comprehensive cloud platform, Amazon Web Services (AWS). Beyond voice assistants, Amazon's AI integration into its e-commerce operations revolutionizes logistics and customer experiences, demonstrating AI's practical applications in everyday business operations. So the company eats its own digital dog food while also selling computing platforms and services to other companies.
Decades in the making: AI's transformative journey
AI isn't exactly a new idea. I wrote a simple board game engine as a special project in college, about 25 years ago, and even then, I was overwhelmed with the depth and variety of computer-based intelligence. But the hardware has grown millions of times more powerful since then and researchers won't stop refining the theory. OpenAI's release of ChatGPT was one of those overnight successes that actually represent the tipping point of a decades-long development.
That point applies to all five companies in my list of AI leaders. The summaries I crafted above are only scratching the surface of much deeper commitments. I'm sure they are preparing to launch exciting AI products, services, technologies, and gadgets over the next few years that we mortals haven't even considered yet -- but they'll become familiar parts of everyday life in short order.
Geeky pastimes like the internet and cellphones surged from obscurity to ubiquity, and now we can't live without them. This is another sea change on that revolutionary level. And the five giants above are leading the charge into a new era.
Balancing AI potential against market expectations
Most of the stocks listed above reflect that massive long-term promise. In particular, Nvidia has been crushing the market in 2023 as investors flocked to this nuts-and-bolts play on the AI industry:
Now, I agree that Nvidia faces a golden era of business growth, driven by high demand for its AI-boosting GPU products. The skyrocketing stock price looks overly enthusiastic, though. Nvidia's stock trades at a nosebleed-inducing 116 times trailing earnings and 36 times sales these days, and I'm tempted to cash in some of the soaring gains in my own portfolio.
Mind you, I have no plans to close out my Nvidia investment. Rebalancing my assets with a heavier weight on lower-priced stock picks, on the other hand, makes a lot of sense. And I'm not alone. For example, growth-investing phenom Cathie Wood of Ark Invest fame is selling Nvidia stock right now to boost her exposure to modestly priced growth stocks. I'm not breaking new ground here.
On the flipside of that coin, market makers seem to have forgotten about IBM's central position in the artificial intelligence market. You can pick up Big Blue's shares at the affordable price of 20 times earnings and 2.2 times sales. That's a steal in my book.
We are looking at five industry giants with bright AI futures, and you should consider all of them for your own portfolio. Right now, I recommend trimming your Nvidia holdings to redistribute those sweet gains into the other four AI titans -- and especially into the undervalued IBM stock.
