Since the advent of the internet three decades ago, numerous next-big-thing investment trends have come and gone. But none of these trends have offered to change the growth arc for corporate America quite like the artificial intelligence (AI) revolution.
AI involves using software and systems to undertake tasks that would normally be overseen by humans. What makes AI special is the ability for software and systems to become smarter without human intervention over time (i.e., machine learning). Being able to evolve over time and become more proficient at their tasks gives AI-driven software and systems utility across almost every sector and industry.
Image source: Getty Images.
According to a report released last year by the analysts at PwC, productivity gains and consumption-side effects directly tied to AI can add $15.7 trillion to the global economy by 2030. A figure this large is hard for investors -- and members of Congress -- to ignore.
Based on data compiled by Unusual Whales in its "Congressional Trading 2023" report, members of Congress can't stop buying four artificial intelligence stocks. Interestingly, you won't find Nvidia on this list, despite it being a favorite of former House Speaker Nancy Pelosi (D-CA) and her venture capitalist husband!
Alphabet
The first AI stock lawmakers have been avid buyers of is Alphabet (GOOGL +0.25%)(GOOG +0.30%), the parent company of internet search engine Google, streaming platform YouTube, and cloud infrastructure service platform Google Cloud, among other ventures.
NASDAQ: GOOGL
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Members of the House and Senate purchased an aggregate of $1.49 million worth of Alphabet Class A stock (GOOGL) last year. The biggest buyers included House. Rep. Michael McCaul (R-TX), who made numerous purchases in the $50,000 to $100,000 range, as well as House Rep. Daniel Goldman (D-NY), who added between $50,000 and $100,000 of Alphabet stock in late January 2023, based on trading activity compiled by Capitol Trades.
What makes Alphabet such an attractive investment is its world-leading search engine. In March, Google accounted for more than 91% of global internet search share. As the clear choice for advertisers, Google tends to enjoy strong ad-pricing power in most economic climates. Lengthy periods of economic growth are positive for ad-driven companies, as well.
However, Alphabet's biggest growth driver looks to be Google Cloud. Alphabet has been busy incorporating generative AI solutions into Google Cloud to help merchants tailor ads to consumers.
Last year marked the first time Google Cloud generated a full-year operating profit. With enterprise cloud spending still early in its ramp, and cloud margins running circles around advertising margins, Alphabet should see a healthy uptick in its operating cash flow over time.
Former House Speaker Nancy Pelosi and her husband have been active buyers of Apple stock. Image source: Official White House Photo by Shealah Craighead.
Apple
A second artificial intelligence stock that members of Congress have pounced on is tech titan Apple (AAPL +0.37%). With the exception of oil and gas company ConocoPhillips, no stock was purchased more in 2023 by lawmakers than Apple ($2.4 million).
Though Apple's future isn't as reliant on AI as the other companies on this list, voice assistant Siri is an example of it incorporating AI solutions into its iPhone for more than a decade.
Apple's biggest buyer in Congress last year was none other than S&P 500-outperformer Nancy Pelosi. A periodic transaction report from the former House Speaker noted a $500,000 to $1 million buy of Apple stock in March, which was followed by the purchase of $250,000 to $500,000 in additional shares in June.
Innovation continues to be the driving force behind Apple's long-term outperformance. Its iPhone controls more than half of U.S. smartphone market share. Meanwhile, CEO Tim Cook is overseeing the steady evolution of Apple into a platforms company. Focusing on subscription services should lift the company's operating margin over time, as well as smooth out the revenue ebbs-and-flows that often accompany major iPhone upgrade cycles.
I'd be remiss if I didn't also mention Apple's market-leading share repurchase program. Since the start of 2013, the company's board has overseen $651 billion in buybacks.
NASDAQ: AMZN
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Amazon
The third AI stock that congressional traders can't stop buying is e-commerce juggernaut Amazon (AMZN +0.38%). Unusual Whales' report finds that $1.06 million in Amazon shares were purchased by lawmakers last year.
The big buyers of Amazon stock have been the aforementioned Michael McCaul and House Rep. Ro Khanna (D-CA). McCaul and Khanna are the two most-active traders in Congress, with 1,826 trades and 4,253 trades, respectively, completed last year.
Most people are familiar with Amazon because of its top-notch online marketplace, which accounted for nearly 38% of U.S. retail sales last year. However, operating margins associated with e-commerce are rather low. When it comes to cash flow generation and long-term growth potential, Amazon Web Services (AWS) is the company's shining star.
AWS is the world's top cloud infrastructure service platform, with an estimated 31% of global share, as of September 30, 2023, per Canalys. With enterprise cloud spending still in its early innings, AWS shouldn't have any trouble sustaining a double-digit growth rate and generating the bulk of Amazon's operating income.
Amazon is also aggressively deploying generative AI solutions within AWS to allow its customers to build applications that can better serve their consumers.
NASDAQ: TSLA
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Tesla
A fourth AI stock that members of Congress can't stop buying is none other than North America's leading electric-vehicle (EV) manufacturer Tesla (TSLA +0.14%). Between the House and Senate, $840,000 in Tesla stock was purchased by lawmakers in 2023, according to Unusual Whales.
The congressional "whale" that was busy mashing the buy button on Tesla is Daniel Goldman. Though Goldman was active as both a seller and buyer -- behind Khanna and McCaul, he's the third most-active trader in Congress, with 1,306 trades in 2023 – his purchases of $100,000 to $250,000 of Tesla stock on March 6, 2023, as well as $15,000 to $50,000 on February 3, March 1, and April 10, stand out.
The lure for lawmakers with Tesla is its first-mover advantages in the EV space. Tesla has successfully built itself from the ground up to mass-production and delivered four consecutive years of generally accepted accounting principles (GAAP) profit. Tesla's EVs use cameras and sensors to assist with the split-second decision-making needed to navigate obstacles.
But among the four stocks congressional traders can't stop buying, Tesla is at the greatest risk of tumbling. Weakening demand for EVs has coerced Tesla to slash the price on Model's 3, S, X, and Y on more than a half-dozen occasions since the start of 2023. The company has also dramatically reduced the price of its full-self driving software from what was once $15,000 to $8,000. Despite these substantial price reduction, Tesla's operating margin has nosedived from 17.2% to 5.5% over the last six quarters and its inventory levels have practically doubled.
Tesla's attempts to become more than a car company have fallen flat, too. Its Services segment offers a low-to-mid single-digit gross margin, while revenue growth for its once red-hot Energy Generation and Storage segment has slowed to the single digits. The once-vaunted growth story for Tesla looks to be officially dead.
