Artificial intelligence stocks are rarer than you might think. Many companies tout AI technology initiatives and machine learning. But there really are few — if any — public, pure-play artificial intelligence stocks.
The “AI” stock ticker, though, has been claimed. Startup C3.ai, which sells AI software for the enterprise market, filed on Nov. 13 for an initial public offering.
Thomas Siebel, who started Siebel Systems and sold it to Oracle for nearly $6 billion in 2006, founded Redwood City, Calif.-based C3.ai.
Further, the number of shares to be offered and the price range for the proposed offering have not yet been determined. In the year ended April 30, C3.ai said revenue rose 71% to $157 million, with a net loss of $69.4 million.
In general, look for companies using AI technology to improve products or gain a strategic edge, such as Netflix (NFLX). Intel (INTC), Alphabet‘s (GOOGL) Google and Microsoft (MSFT) in 2019 made the most investments in AI startups, said a CB Insights venture capital report.
Microsoft, Nvidia Among AI Plays On Leaderboard
Microsoft belongs to the IBD Leaderboard. Further, the Leaderboard is IBD’s curated list of leading stocks that stand out on technical and fundamental metrics.
Chip maker Nvidia (NVDA), a leader in artificial intelligence, also belongs to the Leaderboard. Nvidia in September agreed to buy Arm Holdings from Softbank for $40 billion.
In a report to clients, RBC Capital analyst Mitch Steves said that: “Nvidia will extend its architecture and offer artificial intelligence or ‘acceleration in a box’ for all ARM-based chips. He added: “Instead of looking at ARM as a potential CPU play alone, we think the bigger picture is that 22 billion-plus ARM chips can be accelerated with AI.”
Square Capital, part of digital payment processor Square (SQ), provides loans to merchants. Square Capital uses an AI-driven credit assessment platform in granting new loans.
Aside from chip makers, some software companies are among artificial intelligence stocks to watch. Many software-as-a-service companies use AI tools. Further, Workday (WDAY) showcased its AI and machine learning product innovation at a digital transformation investor event on Oct. 20.
San Mateo, Calif.-based Coupa (COUP) on Nov. 3 agreed to buy Llamasoft, a provider of AI-powered supply chain software, for about $1.5 billion. Llamasoft’s customers include Boeing (BA) and Home Depot (HD).
Enterprise software maker ServiceNow (NOW) has been making AI acquisitions. Under new Chief Executive Bill McDermott, ServiceNow in January acquired two AI companies, Passage AI and Loom Systems.
In addition, ServiceNow owns a Relative Strength Rating of 90 out of a possible 99. Further, ServiceNow stock belongs to the IBD Leaderboard.
DocuSign (DOCU) on Feb. 27 agreed to buy Seal Software for $188 million. The startup uses artificial intelligence for contract analytics.
Intel on Dec. 16 acquired Israel-based Habana Labs for $2 billion. Also, Intel in 2016 bought Nervana Systems in an earlier move to take on AI chip leader Nvidia.
In addition, analysts expect the battle in AI chips for data-center applications to heat up in 2020.
AI technology uses computer algorithms. The software programs aim to mimic the human ability to learn, interpret patterns and make predictions. “Machine learning” is the most widely used form of AI deployed in industries. Machine learning systems use huge troves of data to train algorithms to recognize patterns and make predictions.
AI Stocks: Chipmakers Nvidia, Intel Battle
All AI software needs computing power to find patterns and make inferences from large quantities of data. The race is on between Intel, Nvidia and others to build AI chips for data centers, self-driving cars, robotics, smartphones, drones and other devices.
AI chipmaker Graphcore recently raised $150 million at a $1.95 billion valuation. SambaNova Systems, another AI chip startup, raised $250 million at a $2.5 billion valuation.
It’s no secret that Alphabet, Microsoft, Facebook (FB) and Amazon.com (AMZN) are all spending big bucks on AI technology. The tech giants are putting AI in consumer products and services, such as voice-activated smart home devices. Google and Facebook use AI tools in digital advertising.
Amazon uses AI to customize online retail offerings and recommend products to website visitors. Facebook uses AI to enhance its activity feed, photo and social media apps.
Meanwhile, Netflix utilizes AI to personalize its internet TV content for subscribers. Netflix stock also is on the Leaderboard.
Amazon, Google and Microsoft also are pushing AI technology into cloud computing. They sell AI analytical services to business customers on a pay-as-you-go basis.
Omdia forecasts that annual AI software revenue will increase from $9.7 billion worldwide in 2018 to $119.3 billion in 2025.
Artificial Intelligence Stocks Span Industries
Private venture funding of artificial intelligence jumped 18% in 2019 to $26.2 billion, despite the broader venture market falling 16% in the same period, said a Goldman Sachs report.
In addition, AI competition is fierce in many industries. They include financial services, pharmaceuticals, health care and cybersecurity. Worldwide spending on AI software for retail uses will boom to $9.8 billion in 2025, up from $1.3 billion in 2019, forecasts Omdia.
In the energy industry, startup C3.ai has teamed with Baker Hughes (BKR) and Microsoft to use artificial intelligence in preventive maintenance.
In October, Microsoft and Adobe Systems (ADBE)partnered with artificial intelligence startup C3.ai to sell customer relationship management software, Salesforce.com‘s (CRM)core business.
There’s plenty AI competition in enterprise software.
Meanwhile, Salesforce’s Einstein tools improve sales forecasts. The AI software uses a company’s historical lead and account data to predict which deals are more likely to close.
Adobe: A Leaderboard Stock In AI
In e-commerce, Adobe’s AI tools personalize website content to spotlight products or services that online shoppers are most likely to buy. Also, Adobe also belongs to the IBD Leaderboard.
Further, The IBD 50 roster of growth stocks has featured artificial intelligence stocks in online dating, digital advertising and business communications.
In addition, other companies using AI include:
Match Group (MTCH): Controlled by IAC (IAC), Match is using artificial intelligence to improve its Tinder mobile dating app. Tinder’s new “Super Likable” feature uses machine learning.
Trade Desk (TTD): The digital advertising firm provides automated tools to help customers buy online ads and optimize return on spending. Trade Desk’s AI tools identify the best websites to buy ads on.
Cybersecurity Firms Among Artificial Intelligence Stocks
Here are other stocks to consider:
• Five9 (FIVN): A provider of cloud-based contact center software, Five9 is developing machine learning algorithms that help companies automate customer support. Five9 is partnering with Google on AI contact center software.
• Visa (V) and Mastercard (MA): The credit card networks use AI tools to detect financial crimes such as fraud and money laundering. In addition, big banks use AI in chat bots that provide online customer services.
• Palo Alto Networks (PANW) and Fortinet (FTNT): With artificial intelligence, the cybersecurity firms aim to spot and block malicious activity on computer networks better than existing technologies can.
Omdia forecasts that AI chipsets and accelerators for “edge” applications will grow to $51.9 billion by 2025, up from $7.7 billion in 2019. Those apps include mobile phones, automotive, drones, security cameras, robots and smart speakers.
In addition, memory chip makers such as Micron Technology (MU) should get a boost, analysts say. That’s because intelligent devices will need more more memory to process AI apps.
U.S., China Battle In Artificial Intelligence
Semiconductor manufacturing equipment makers such as Applied Materials (AMAT) expect AI to boost demand for high-end gear. Test equipment makers such as Teradyne (TER) could get a boost from AI chips as well.
In addition, others to keep an eye on include IBM (IBM), Accenture (ACN), Epam Systems (EPAM) and other IT services companies.
Also, the U.S. is racing versus China and other countries to develop artificial intelligence technology. In January, the U.S. government placed restrictions on the export of AI software.
Further, the use of artificial intelligence in facial recognition and some other areas has become controversial. Alphabet CEO Sundar Pichai has called for regulation of artificial intelligence.
In addition, Investors interested in AI technology also could consider the TCW Artificial Intelligence Equity Fund (TGFTX). It’s primarily for institutions but is open to retail investors.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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