Computers excel at crunching numbers but not at the kinds of things many people do with ease: language processing, visual perception, manipulating objects, reasoning, planning, and learning. Artificial intelligence (AI), including its offshoots of deep learning and machine learning, uses computers to perform tasks that normally require human intelligence.
How do companies use artificial intelligence?
AI is created through machine learning, which involves training a system with huge amounts of data. It then uses the trained system to make inferences about new data it’s never seen.
The simplest example is a system designed to detect objects in images. Images with those objects are provided to the system, which “learns” how to detect those objects in other images. The more objects in images it detects, the more accurate the detection system becomes.
Companies employ artificial intelligence in two main ways. Many tech companies use AI to make their existing operations more powerful such as through high-profile applications, including robotics, self-driving cars, and virtual assistants. Google, a subsidiary of Alphabet (GOOGL -0.15%), (GOOG -0.19%), uses AI to filter out spam for Gmail users. Amazon (AMZN -0.59%) uses AI to recommend products to customers, while Netflix (NFLX 2.5%) uses AI to guide content creation and recommendations.
More recently, OpenAI's ChatGPT has shown how far "generative AI" a division of artificial intelligence that is capable of generating texts, images, sounds, and ideas, has come. The potential of such large language models is enormous.
Some companies also profit directly from AI by selling hardware, software, services, or expertise that the technology needs. These are true artificial intelligence stocks and include those listed and described below.
Machine learning, or AI, involves training a system with huge amounts of data, then using that trained system to make inferences about new data it has never seen.
Top AI stocks to buy in 2023
|NVIDIA (NASDAQ:NVDA)||Graphics chips and self-driving cars|
|IBM (NYSE:IBM)||Augmenting human intelligence across industries|
|Microsoft (Nasdaq:MSFT)||Memory chips for data centers and self-driving cars|
|Amazon (NASDAQ:AMZN)||Voice-activated technology, cloud computing, and e-commerce|
|C3.ai (NYSE:AI)||Uses software-as-a-service to provide enterprise-scale AI applications|
Leading graphics chip company Nvidia has taken advantage of the AI boom, with its graphics cards becoming the de facto standard in data centers around the world. Machine learning’s training phase demands a lot of computing power; the phase that follows, the inference phase, requires less. Graphics processing unit (GPU) chips, used primarily for rendering video games, support both phases well.
Nvidia’s data center business represents a steadily increasing share of the company’s total revenue and topped its gaming segment in revenue in fiscal 2022. This segment isn’t all AI-related -- Nvidia’s graphics cards are used to accelerate a wide variety of data center applications. But AI is one of the driving forces behind the company’s growth.
Its chips are popular for demanding workloads that applications like large language models require, and the company just launched a new set of inference platforms specifically designed for generative AI.
Self-driving cars are another area of focus. Nvidia develops platforms, including hardware and software, that can power driver-assistance features, as well as fully autonomous driving.
A self-driving car must process massive amounts of data from multiple sensors and cameras in real time, detect objects such as pedestrians and other vehicles, and make complex decisions. They require a tremendous amount of computing power, and that’s exactly what Nvidia’s platform delivers.
Its professional visualization segment, which includes its omniverse, also has a lot of potential in AI.
Nvidia’s graphics cards could someday be supplanted by more specialized processors designed for AI, but for now, the company is in an enviable position.
This legacy tech company is an integrated provider of hardware, software, and services to large enterprise customers. Its mainframe computer systems are still ubiquitous in certain industries, and it regularly signs multi-year technology deals worth hundreds of millions of dollars each.
IBM’s strategy with AI is to apply the technology in ways that augment human intelligence, increase efficiency, or lower costs. In the healthcare industry, IBM’s AI technology is being used to create individualized care plans, accelerate the process of bringing new drugs to market, and improve the quality of care, though it sold off its Watson Health business in early 2022. In the financial services industry, via the company’s 2016 acquisition of Promontory Financial Group, IBM is using AI to help clients with the daunting task of financial regulatory compliance.
While the market for AI products and services is fragmented, IBM is leading the industry. Market research firm IDC ranked IBM as the leader in AI software platforms with a 13.7% market share in 2020, up 46% from the prior year.
IBM is a complicated company undergoing transformation, and AI is far from its only growth opportunity. But if you’re looking to invest in a company that is well-positioned to benefit from the AI boom, IBM is a good choice.
Microsoft has gotten a lot of buzz of late thanks to its partnership with OpenAI. Microsoft began investing in the tech start-up in 2019, and recently put another $10 billion in OpenAI following the launch of ChatGPT.
Microsoft unveiled a new version of its Bing search engine, powered by ChatGPT, and the company is racing to incorporate GPT features across its product portfolio, including its Azure cloud infrastructure service, Edge web browser, Office productivity software suite, and Bing.
CEO Satya Nadella has said repeatedly that he sees AI as the next major computing platform, and the $10 billion investment in OpenAI is a sign of its conviction in AI and its belief that it needs to lead that transition in order or get left behind as it did with mobile.
Microsoft is also harnessing the power of AI in other ways, including automated clinical documentation in healthcare to reduce paperwork and administrative needs, and using Azure to allow customers to build custom AI tools.
Perhaps no company is using AI more widely than Amazon. Founder and executive chairman Jeff Bezos has been an evangelist for AI and machine learning. Although Amazon started as an online retailer, technology has always been at the company’s core.
Today, Amazon uses artificial intelligence for everything from Alexa, its industry-leading voice-activated technology, to its Amazon Go cashierless grocery stores, to Amazon Web Services Sagemaker, the cloud infrastructure tool that deploys high-quality machine learning models for data scientists and developers.
Amazon’s e-commerce business is also built on AI since algorithms run its top-flight recommendation engines for e-commerce and video and music streaming. In addition, Amazon uses AI to determine product rankings.
Even Amazon’s logistics operations benefit from its AI prowess, which helps with scheduling, rerouting, and other ways to improve delivery accuracy and efficiency. Drone delivery, which the company has long sought to implement, would be yet another AI application for the tech giant.
It’s difficult to quantify the impact of AI on Amazon’s business, but it’s clearly a key component of the company’s competitive advantage. Throughout its history, Amazon has been at the forefront of emerging technologies such as e-commerce, e-books, cloud computing, video streaming, and voice-activated technology. AI provides much of the infrastructure that helps the company move into new businesses quickly and effectively.
C3.ai may be the closest thing on the stock market to a pure-play AI stock, as the “ai” in the company’s name and its ticker might indicate. While the companies on the list above are diversified tech giants or chip makers that have some businesses involved with AI, artificial intelligence is the entire focus of C3.ai.
C3.ai is a SaaS company whose software allows companies to deploy large AI applications. The company’s tools help its customers accelerate software development and reduce cost and risk, and they have a wide variety of applications. For example, the U.S. Air Force uses C3 AI Readiness to predict aircraft systems failures, identify spare parts, and find new ways to increase mission capability. European utility company Engie (ENGIY -1.94%) is using C3 AI to analyze energy consumption and reduce energy expenditures.
It's also launching its own generative AI suite with enterprise search as the first product. Enterprise search allows customers to use a natural language interface to locate and retrieve relevant data across all of the enterprise's information systems.
C3.ai is the first mover in its industry and says it isn’t aware of an end-to-end enterprise AI development platform in direct competition with it. That unique positioning could make the company a big winner over the long term, although the AI SaaS market is evolving and could attract competition from big cloud infrastructure such as Amazon or Microsoft.
Machine learning stocks
All of the stocks above use machine learning technologies, but if you’re looking for more options, here are two others worth considering:
- Alteryx (AYX -0.81%) is a provider of data analytics software that empowers data workers to solve problems with a wide range of analytics and data science tools. Its Alteryx Intelligence Suite, one of several products, offers machine learning capabilities, including automated modeling and natural language processing to build models.
- DocuSign (DOCU -1.03%), an AI-powered leader in digital signature software, has made significant inroads into machine learning in recent years. In 2020, the company acquired Seal Software, an enterprise contract analytics company that uses machine learning for organizing and identifying risks and opportunities in contracts. For years, DocuSign has been building machine learning tools such as DocuSign Insight to help with contract analysis through natural language processing.
Deep learning stocks
Deep learning is a subset of machine learning that uses artificial neural networks inspired by the human brain. It’s the most advanced kind of artificial intelligence and is crucial in technologies such as self-driving cars. Deep learning is making advances in areas such as preventive healthcare, where predictive algorithms are necessary, and it differs from machine learning in that it doesn’t require human inputs.
Among the companies closely associated with deep learning are Nvidia, whose GPU chips use deep learning to power data centers and enable autonomous driving and cloud computing, among other functions.
Alphabet has exposure to deep learning through a number of its businesses, including its autonomous vehicle start-up Waymo. It also owns DeepMind, a deep learning platform that can diagnose eye diseases, predict the shapes of proteins, and accelerate the scientific discovery process.
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AI is a growth business
Total spending on AI systems is forecast to reach $97.9 billion in 2023, up from $37.5 billion in 2019. For the five-year period ending in 2023, the AI sector is predicted to grow at an annualized rate of 28.4%.
With the AI market already large and still growing quickly, plenty of companies can profit from AI. Although picking stocks in a growth industry comes with a lot of uncertainty, these top AI stocks are all worth considering.