Jump On The AI Bandwagon With Nvidia And 3 Other Stocks

Artificial intelligence (AI) is a global rage these days. AI has long been touted as the next big thing in the technology sector, and its usage is growing each and every day.

AI: Massive Growth Potential

AI techniques like machine learning, deep learning and natural language processing (NLP) are rapidly changing our digital lives. AI has many broad definitions, but essentially refers to concept of machines and virtual programs that can function in a manner that replicates human mannerisms, such as speech recognition, visual processing, and so on.

One huge advantage of AI is its potential to complete dull and mundane tasks through automation that will increases efficiency and output. Broadly speaking, AI techniques can eliminate “boring” tasks of humans and free them up for more innovative and nuanced creations.

According to the latest data from the IDC worldwide spending on AI systems will touch $12.5 billion in 2017, an increase of nearly 60% from 2016. The IDC is also calling for this global spending to achieve a compound annual growth rate (CAGR) of 54.4% through 2020, when total revenues will reach $46 billion.

Revenue projections are also bullish. One estimate from research company Tractica puts revenues from AI at $59.8 billion by 2025. If such an optimistic forecast does come true, it would be a quantum leap over 2016’s level of a mere $1.4 billion.

Few of the existing technology giants — the market leaders like Amazon (NASDAQ:AMZN) , Facebook (NASDAQ:FB) , Alphabet (NASDAQ:GOOGL) , Apple (NASDAQ:AAPL) , Nvidia (NASDAQ:NVDA) , and Tesla (NASDAQ:TSLA) — are going to be leading the charge on AI research and deployment.

Picking a Leader

With AI, the market is still so nascent that it's best for investors to focus on companies who lead in the space right now.

We have already mentioned a handful of them above, but let's focus our attention on Nvidia for a moment here. Nvidia is one of the leading players in AI for applications to autonomous driving and also sells its GPUs to Alphabet, Facebook, Microsoft (NASDAQ:MSFT) and Amazon for their data centers.

Notably, the company entered into a wide range of partnerships based on its AI technology, including Baidu, Foxconn, Inventec, Quanta, Wistron, Volkswagen (DE:VOWG_p), Volvo and Autoliv. Demand for NVIDIA’s DGX AI supercomputer also remained high as more organizations are keen on building AI-enabled applications. It has shipped the system to over 300 customers, so far, and more than 1,000 are in the pipeline. Per NVIDIA, Facebook is using its 128 DGX system. With these deal, NVIDIA will be better positioned to enhance its hold in the AI technologies.

According to data available from BI intelligence, 10 million self-driving cars will be on the road by 2020. Per Statista, the market for fully autonomous vehicles will grow to almost $6 billion while partially autonomous vehicles market will reach $36 billion by 2025. According to Boston Consulting Group estimates, the autonomous car market will be worth $42 billion by 2025 and $77 billion by 2035.

These estimates encourage us about NVIDIA’s growth prospects in the space. With its sustained focus on developing new and more advanced technologies for self-diving cars, we believe that the company is well poised to capitalize on this opportunity.

NVIDIA share prices have appreciated 55.3% year to date. The stock has delivered positive earnings surprises in the trailing four quarters with an average beat of 34.5%.

NVIDIA currently sports a Zacks Rank #1 (Strong Buy) and has a long-term expected earnings growth rate of 10.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Three Other Major Tech Companies Worth Betting on

Intel (NASDAQ:INTC): The company is gearing up to become a major provider of solutions for the AI market. Recently Intel launched its new data center platform called Xeon Scalable. The new platform accelerates inference throughput for AI, High Performance Computing (HPC) and Virtual Reality (VR).

Additionally, Intel announced that it has been selected by the US Defense Advanced Research Projects Agency (DARPA) to collaborate on developing a powerful new data-handling and computing platform, which will leverage machine learning and other AI techniques.

Intel has a Zacks Rank #2 (Buy). The company has long-term expected earnings growth of 8.4%. The stock has delivered positive earnings surprises in the preceding four quarters with an average beat of 5.6%.

Alphabet: The company is using AI to serve better ads to its users, detect images in its Google Photos app, and understand what is being said to its Google Assistant. Reportedly, Alphabet’s division Google acquired Belarus-based startup AIMatter recently. The acquisition underscores Google’s continuous push into AI, leading the company to launch innovative products and services for multiple industries.

Alphabet is well on track with its transition from “Mobile-first” to “AI-First”. Further, its continued AI-based acquisitions indicate that the company is increasingly banking on AI and machine learning technologies for growth.

Alphabet share prices have appreciated 18.9% year to date. The stock has delivered positive earnings surprises in three of the trailing four quarters with an average beat of 5.1%.

Alphabet currently carries a Zacks Rank #3 (Hold) and has a long-term expected earnings growth rate of 16.5%.

Facebook: The company uses its AI systems to fine-tune the content it serves to its nearly 2 billion users, by improving facial recognition and helping decide which stories show up in one’s News Feed.

Facebook uses an AI system it created, called DeepText, to "understand with near-human accuracy the textual content of several thousand posts per second, spanning more than 20 languages." Without AI, Facebook would have problems sifting through the massive amount of posts, videos, and pictures it receives every day and deciding which is the most relevant.

Facebook share prices have appreciated 46.6% year to date.

The stock has delivered positive earnings surprises in the last four quarters with an average beat of 11.3%.

Facebook currently carries a Zacks Rank #3 and has a long-term expected earnings growth rate of 26.5%.

Bottom Line

A lot of evolving tech trends can be dicey, but the companies listed above are increasing stakes among many diverse prospects, including AI. This should help investors to benefit from this growing market.

Although past performances do not guarantee similar results in the ensuing year, we feel optimistic about these stocks given massive growth opportunity in AI and related fields.

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