The artificial intelligence revolution is well underway, as evidenced by compelling results from several major tech giants last week. There is perhaps no stronger medium-term tailwind than AI spending and investment; However, for investors putting their money to work today, many AI stocks have risen sharply this year, pricing in a very strong future.
So what are the best AI stocks to buy now? Perhaps those companies that are likely to benefit from the AI revolution, but which have either pulled back or are lagging higher-profile competitors due to short-term concerns.
That makes these three traditional tech stocks the top pickups for your new AI investment dollars this week.
Metaplatforms
Facebook and Instagram parent Metaplatforms (NASDAQ:META) has slumped following the latest earnings report, but let’s keep things in perspective. The stock was up around 50% at one point earlier in the year, so it needed an absolutely perfect report to keep rising.
Instead, there were some legitimate concerns. Although Meta beat first-quarter estimates, management forecast somewhat conservatively, expecting “only” 18% growth in the coming quarter, a slowdown from last quarter’s booming 27% growth. While the revenue forecast was a bit lackluster, CEO Mark Zuckerberg actually increased his forecast for capital investment in artificial intelligence (AI) this year.
Lower-than-expected revenue and higher expenses are certainly a recipe for a sell-off. But that’s probably short-sighted. After all, there’s a good reason the company is increasing its AI investments this year. Current AI investments today not only benefit Meta’s core recommendation engines for social media platforms, but Meta also has the potential to become a leader in AI outside of its current core business. Finally, the large language model Llama 3 has become a first-class LLM, especially in the open source community.
Mark Zuckerberg said in the conference call with analysts:
So with the latest models we are not just building good AI models that will be able to build some new good social and commercial products. I actually believe we are at a point where we have shown that we can build leading models and be the leading AI company in the world. And that opens up many additional possibilities beyond those most obvious to us. So that’s what I wanted to refer to in my opening remarks, where I just take the success that we’ve seen with the way Llama 3 and Meta AI have come together as a real validation that, technically speaking have the talent, the data and the ability to scale the infrastructure to do leading work here. And I think that with Meta AI we’re on the path to making Meta AI the most used and best AI assistant in the world, which I think will be hugely valuable. All of this basically encourages me to make sure we invest to stay at the top here.
If AI is truly going to change the world, Meta is one of the few companies with the financial resources and talent to lead it. And it looks like Zuckerberg isn’t shying away from the opportunity.
Here too he has credibility. It was doubted that Meta would make the transition to mobile, then to Stories, then to Reels. But each time, Meta’s investments paid off and the company was able to adapt to monetize the new opportunity.
Meanwhile, Meta trades at just 22 times this year’s estimates and about 19 times 2025 earnings estimates. Not only is that not a sophisticated valuation, but it also includes tens of billions of dollars in losses in the company’s Reality Labs segment, which has a loss ratio of $15 billion. Meanwhile, investors don’t seem to expect any return on this investment at all.
Essentially, the post-earnings pullback represents a big long-term opportunity for what could be the leading consumer AI company in the future.
Amazon
While Amazon.com (NASDAQ:AMZN) is set to benefit significantly from the AI revolution as the stock is only just returning to its 2021 highs.
But could an outbreak be on the horizon? Amazon was considered a latecomer in the AI competition and its cloud infrastructure platform Amazon Web Services (AWS) is currently growing the slowest than its competitors.
But these concerns may be overblown. After all, AWS is the largest cloud platform and therefore it is more difficult for them to grow quickly compared to their smaller competitors. Additionally, during the past downturn when customers demanded cost control, Amazon expanded its size by cutting prices in exchange for longer-term commitments. And because Amazon is ahead in developing its own processors called Graviton and its AI accelerators called Trainium and Inferentia, it is able to redirect customers’ workloads to these lower-cost options when necessary.
Additionally, Amazon offers perhaps the most diverse selection of large third-party language models in its Amazon Bedrock service, as well as its own LLM called Titan. And while Amazon missed out on investing in OpenAI, Amazon made a strategic $4 billion investment in AI startup Anthropic back in March. It’s still very early in the AI race and it’s quite possible that OpenAI won’t dominate the market despite being the largest private AI startup today.
The bedrock also continues to improve. Just last week, Amazon introduced several new features. These include the ability for companies to create their own custom models and use that model through the same API as popular third-party models, a model evaluation and comparison tool to help customers choose the right model for their specific needs, and two new ones Titan models, one optimized for image generation and another optimized for question and answer chatbots.
Ultimately, generative AI has the potential to provide major benefits to any company with a lot of proprietary data. As the world’s largest e-commerce retailer, Amazon will most likely use AI to improve its core e-commerce and advertising businesses, along with new scientific ventures such as the Kuiper satellite broadband project. Amazon has a history of inventing new products and services that are difficult to develop. Therefore, AI is also likely to significantly support the company’s innovation engine.
Intel
For a riskier but much more rewarding choice in the AI space: Intel (NASDAQ:INTC) could be an interesting choice. Unlike other AI chip companies that have been booming, Intel stock has lagged badly. Falling behind Taiwan semiconductor manufacturing (NYSE:TSM) a few years ago on the process technology that all of Intel’s competitors use for manufacturing really hurt things.
But CEO Pat Gelsinger has apparently patched things up, as Intel’s “Five Nodes in Four Years” roadmap appears to be on track and Intel has hit its innovation timelines over the last year and more.
Of course, the ambitious technology investments are having a negative impact on Intel’s bottom line, as the company not only invests heavily in leading process technology for its own processors, but also builds capacity for third-party chipmakers to use its foundry.
Uncertainty over implementation and the multi-year plan has left investors sidelined for the time being. This is especially true as Intel’s core market, the PC market, appears to be slowly recovering from its post-pandemic downturn. But that’s why Intel shares can only be bought at 1.3 times book value today.
But if Intel follows through on this, there’s a chance the company could make big strides in the AI chip market. Management now forecasts sales of its new AI accelerator Gaudi 3 to exceed $500 million in the second half of this year, which Intel says will even exceed that figure Nvidia‘S (NASDAQ:NVDA) H100 for certain workloads. Even better, Intel expects the company to catch up with its competitors in process technology for CPUs in 2025 with the release of the Clearwater Forest Xeon processor. Gelsinger believes the chip may be able to handle some important AI inference tasks that may be more cost-effective for CPUs than GPU accelerators. And in 2025, Intel is also expected to introduce “Falcon Shores,” the Gaudi and
Will Intel really soon overtake Nvidia in AI computing? Probably not. But with a market cap of just $135 billion compared to Nvidia’s market cap of $2.2 billion trillionIntel only needs to achieve minor market share gains in AI for the stock to work.
While investing in Intel is riskier than other AI players because it relies heavily on execution, it also offers much higher potential rewards should Gelsinger’s turnaround plan work.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Billy Duberstein has held positions at Amazon, Meta Platforms and Taiwan Semiconductor Manufacturing. Its customers can own shares in the companies mentioned. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long $45 January 2025 calls on Intel and short $47 May 2024 calls on Intel. The Motley Fool has a disclosure policy.
Here are my top 3 artificial intelligence (AI) stocks to buy now was originally published by The Motley Fool