Artificial intelligence stocks remain hot — although perhaps not as hot as they were just a few weeks ago. A number of AI stocks have taken a big hit in the recent market sell-off.
From a long-term standpoint, however, that’s good news. The use of artificial intelligence is only going to increase, providing strong growth opportunities for companies exposed to the trend. And the indiscriminate selling in tech, in particular, has left several AI stocks at more reasonable valuations.
These five Artificial Intelligence stocks all look like potential opportunities to buy on the dip. Each addresses a different portion of the artificial intelligence market — but all five should see AI-related revenue and profits grow for years to come. While none of the stocks are particularly cheap, they probably shouldn’t be. And they also might never again be as cheap as they are right now.
Any list of artificial intelligence stocks simply has to include Nvidia (NASDAQ:NVDA). The chipmaker’s dominant market position in GPUs (graphics processing units) sets it up perfectly for the hardware requirements of artificial intelligence.
Indeed, as Tom Taulli pointed out in September, Nvidia’s opportunity in AI is expansive. And while NVDA stock isn’t cheap, it’s certainly much cheaper than it has been, particularly after dropping almost 40% in a matter of weeks last month. The stock already has bounced — and there’s plenty of room for that upside to continue. As I’ve written before, there are a lot of reasons to like NVDA stock. The opportunity in artificial intelligence and a cheaper price just create two more.
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is another well-covered AI play. The company has been investing heavily in artificial intelligence for some time now, most notably through its Google Assistant offering. One of Google’s software engineers last week cited “exponential” growth in the industry, which can offset slowing improvements on the hardware side.
Google has been developing its own AI chips as well, potentially giving it exposure to the entire market. Data will be hosted on Google Cloud, run on the company’s chips and even coded through a Google framework.
The question is whether AI is enough for GOOGL stock. I’ve long been a skeptic toward the stock — but at 17% below July highs, GOOGL stock is cheaper. A 22x-plus forward P/E multiple looks reasonable, particularly since the figure drops below 20x backing out the company’s huge cash hoard. There are still worries about the core search and advertising businesses – but success in new areas like AI could keep Alphabet’s growth intact for years to come.
Investors considering GOOGL should also consider fellow tech titan Microsoft (NASDAQ:MSFT). The investment case here is rather similar. Microsoft, too, has invested in its AI capabilities, as James Brumley has pointed out. Like Alphabet, it’s developing its own AI chips.
And like GOOGL, MSFT stock has pulled back of late, though not quite as far. MSFT is down around 7% from early October highs — a pullback half as large as that of GOOGL.
The case for Alphabet stock does seem stronger. A recent dividend hike from Microsoft looked like a sign of a potential top, and Alphabet at the moment offers better growth at similar multiples. But Microsoft’s legacy software provides a strong base, and AI success could accelerate growth and lead Microsoft stock higher.
Yext (NYSE:YEXT) was one of the hottest stocks of 2018 until two months ago. But since touching an all-time high above $27 — at which point YEXT stock had doubled in 2018 alone — YEXT has pulled back some 28%. And that seems to set up an opportunity here.
Yext itself isn’t a pure AI operator — at least not yet. Rather, the company allows customers to control their public data. Instead of using “best guess” information from other sources, intelligent searches by AI engines can use Yext-supplied — and more accurate — information.
It has been a solid business so far, with revenue nearly tripling over the last three years, and guided to rise another 30%-plus this year. Even on the pullback, YEXT isn’t cheap, at nearly 9x revenue. But this is a quality growth stock with a long-term runway to growth — and nearly 30% cheaper, YEXT stock looks like a buy.
Global X Robotics & Artificial Intelligence ETF (BOTZ)
A pure AI ETF isn’t quite available yet, but the Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ) offers an interesting alternative. Expense fees are higher than usual, at 0.68%, but the BOTZ ETF offers an intriguing and diversified mix. Top-10 holdings include Intuitive Surgical (NASDAQ:ISRG) and NVDA — but also a number of Asian leaders in the category, including Mitsubishi Electric (OTCMKTS:MIELY), Daifuku (OTCMKTS:DAIUF) and SMC Corporation (OTCMKTS:SMCAY).
BOTZ has been a solid performer so far, with annualized gains of 24% since its inception in 2016. Given the trends backing its components, outperformance could continue for years to come.
As of this writing, Vince Martin has no positions in any securities mentioned.