Artificial Intelligence (or AI) is the latest and greatest buzzword on Wall Street. Given some of the AI-inspired rallies we’ve seen so far this year, it’s no wonder investors are looking for the best AI stocks with huge upside.
According to Bank of America’s Savita Subramani, “AI mentions on corporate earnings calls are up 64% year over year and that should signal spending in the tech sector…We expect more AI-related capex ahead.”
Given the way an AI-related headline can move a stock (more on that in a minute), it’s no surprise that companies and management teams are tapping into this new trend. Many of the best AI stocks have already made big moves, but that doesn’t mean they aren’t without upside.
Let’s look at a few AI stocks to watch in 2023 and beyond.
Best AI Stocks for Long-Term Gains: Microsoft (MSFT)
At this point, Microsoft (NASDAQ:MSFT) is one of the top AI stocks right now. First, shares have been on fire, up four months in a row and 44% from the 2022 low. Second, Microsoft is one of the strongest companies in the world.
It commands a market capitalization of $2.3 trillion, second only to Apple (NASDAQ:AAPL) in the U.S. Too many investors underestimate what Microsoft’s finances look like, particularly on the free cash flow and margin front. In the last 12 months, the firm generated $57.5 billion in free cash flow, and its trailing operating margins of 40.85% were better than all of FAANG (the next closest is Apple at 29.1%).
What I love most, though, is that CEO Satya Nadella refuses to sit back and see how the AI game will play out. The company struck quickly, snatching up a huge investment in ChatGPT parent OpenAI. It’s integrating its technology into its business and is far from done with AI at this point.
Microsoft is looking to dial up its fight in internet search (Bing), its browser (Edge), and its enterprise platforms.
AI Stocks That Could Skyrocket: Advanced Micro Devices (AMD)
If there is any doubt about the power of AI when it comes to stocks, Advanced Micro Devices (NASDAQ:AMD) should erase all of it. Last week, shares fell more than 9% in a single session, hitting its lowest level since mid-March after guidance underwhelmed investors.
However, the stock has since rallied 17% in a three-day span after a headline hit last week saying Microsoft and AMD were working together on an AI chip.
According to the report, Microsoft is helping to finance the development. Even though Microsoft currently sources its AI chips from Nvidia (NASDAQ:NVDA), the reports suggest it could turn to AMD as a potential source in the future.
Interestingly, a few days after the reports, Microsoft denied some of it. The firm said it isn’t working with AMD to develop its own processor. However, Microsoft didn’t say it wasn’t involved with AMD or wasn’t helping to finance it. Microsoft has “denied that AMD is involved with Athena” — Athena being the codename for its own in-house AI chips.
The bottom line: The tech world can’t count on Nvidia to produce all the chips for AI, and AMD is a natural rising star to fill the supply gap.
One Stock to Watch: Alphabet (GOOGL, GOOG)
It seems like an obvious choice, but so far, the market has not rewarded Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) for its AI ambitions. Despite this, I think it will be one of the best AI stocks of the future.
Microsoft sunk a multi-billion stake into OpenAI in part for its ChatGPT platform. Given how fast it garnered more than 100 million users, it’s not hard to see why. The way it’s incorporating it into its platforms (like Bing and Edge) is smart too.
However, it’s impossible to ignore Alphabet’s grip on the internet. The two most popular websites on the internet are Google.com and YouTube (literally, not figuratively). Chrome dominates the internet browser market share.
AI is shifting and moving rapidly; there’s no doubt about that. Unless you are an AI expert, it may be impossible to keep up with how fast it’s shifting, growing, and manifesting in different forms and products. But regardless of this speed, people are slower; they are creatures of habit.
While Microsoft may chip away at some of Google’s market share lead in various products, I think Alphabet will keep a hold over its top spots. Not to mention, Alphabet is working on AI solutions of its own. I think this one could be a nice long-term winner.
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Source: Investor Place