Artificial intelligence (AI) comes in different forms, but generative AI has been the focus for most mainstream developers this year. It's one of the few AI segments already bringing in revenue thanks to its ability to instantly create text, images, videos, and computer code, which consumers and businesses are finding incredibly valuable.
Startups like OpenAI (the creator of ChatGPT) and Anthropic have led the way on generative AI, but it's spreading through the technology sector like wildfire, with some of the world's largest companies investing billions of dollars in development. Two publicly traded companies emerging as superpowers in the generative AI industry are Alphabet (GOOGL 10.22%) (GOOG 9.96%) and C3.ai (AI 3.02%).
Here's why investors should consider buying stakes in both of them right now.
Image source: Alphabet (Google).
1. Alphabet (Google) just unveiled Gemini, its most powerful AI so far
Alphabet has been working on AI for years. In fact, Google purchased DeepMind, a research and development company focused on building AI responsibly, way back in 2014. Nevertheless, investors still believed Alphabet was behind the curve when Microsoft (MSFT 1.82%) swooped in to acquire a $10 billion stake in OpenAI roughly a year ago.
Microsoft quickly integrated ChatGPT into its Bing search engine. It was initially perceived as a threat to the dominance of Google Search, which has a 91% market share. Simply put, prompting an AI chatbot for answers is a more convenient way to find information than entering a query into a traditional search engine and sifting through web pages.
Alphabet launched a speedy response to that threat. It now has a chatbot of its own called Bard, but the company also embedded AI into the traditional Google Search experience. Now, when users enter a query, the search engine often provides a text-based response at the top of the page to save them from clicking through to different web results.
Alphabet also just launched Gemini, the company's most powerful generative AI model yet. According to the company, it's the first model ever to outperform human experts on an MMLU (Massive Multitask Language Understanding) basis. In other words, it's smarter than humans in many academic disciplines like elementary mathematics, U.S. history, and computer science (among others).
Most importantly, Alphabet management says Gemini outperforms OpenAI's most advanced GPT-4 model across most text-based and multimodal (image, video, and audio) tasks. In a series of demonstrations, Gemini displayed an ability to understand all of those media formats with powerful reasoning. For example, when shown a drawing of a guitar, Gemini identified it and played its sound. When the user added a drawing of an amplifier, Gemini understood how that changed the guitar's sound.
Alphabet is monetizing its AI technology through its cloud computing platform for businesses, Google Cloud. But Microsoft is already seeing success embedding AI into applications like Word and Excel in exchange for an additional monthly fee. Considering there are an estimated 1.8 billion Gmail users and over 1 billion Google Docs users worldwide, Alphabet has a substantial monetization opportunity ahead.
Alphabet is on track to deliver $5.74 in earnings per share in 2023 (ending Dec. 31), giving its stock a price to earnings (P/E) ratio of just 23.4. That's cheaper than both Microsoft stock and the Nasdaq-100 index, which trade at P/E ratios of 36.2 and 28.3, respectively, making Alphabet one of the best value plays in the AI space.
2. C3.ai is an AI pioneer, and its sales growth is ramping up
C3.ai was founded in 2009 and it was an early provider of enterprise AI solutions. Today, it offers businesses over 40 different turnkey AI applications to help them harness the power of the technology without having to build it from scratch, which takes considerable time and resources. C3.ai specializes in predictive AI; its models help banks fight fraud, and they help oil and gas companies monitor thousands of pieces of equipment to help prevent failures.
The company launched C3 Generative AI earlier this year to capture the growing opportunity created by applications like ChatGPT. It's a highly advanced tool specifically designed for enterprises; almost any organization within any industry can embed it into their operations to create a powerful virtual assistant tailored to the specific needs of their business.
C3 Generative AI can ingest both structured and unstructured data, the latter of which is found in Word documents, PDFs, invoices, contracts, and other mediums. The company says two-thirds of data within most organizations is never utilized primarily because it's unstructured, but users can upload almost any document type to this new platform. From there, they can use the intuitive search and chat interface to generate more valuable and actionable insights than ever before.
C3.ai sells its AI applications to businesses directly, but it also has an extensive partner network that includes cloud giants like Google Cloud, Microsoft Azure, and Amazon Web Services (AWS). It just expanded its collaboration with AWS by creating C3 Generative AI: AWS Marketplace Edition, which will make C3.ai's generative AI directly available to millions of businesses on the world's largest cloud platform.
C3.ai is currently transitioning away from a subscription-based revenue model toward a consumption one instead, so that businesses only pay for what they use. This will dramatically reduce the time C3.ai spends negotiating with new customers, allowing them to sign up far more quickly.
This shift initially caused a slowdown in C3.ai's revenue growth (by design) while existing customers converted, but in the recent fiscal 2024 second quarter (ended Oct. 31), the company's sales jumped 17% year over year, which was the fastest pace in more than a year.
It could accelerate even further in the coming quarters, so investors have an opportunity to buy C3.ai stock right now ahead of a potential upswing in its business.
