Is the artificial intelligence stock market boom still wired or tired? Top AI stocks such as Microsoft (MSFT) and Nvidia (NVDA) face high expectations. For many companies — such as Google parent Alphabet (GOOGL), Amazon.com (AMZN) and Facebook parent Meta Platforms (META) — the rise of generative AI poses both risk and opportunity.
↑X Semiconductor Stocks: How The AI Chip Boom Is Priming The Sector For Growth See All Videos
Amid the emergence of generative AI — which can generate text, images, and video — it's a good time to be cautious amid the hype. Many companies suddenly tout AI product roadmaps. In general, look for AI stocks that use artificial intelligence to improve products or gain a strategic edge.
Top September Events For AI Stocks
Apple's (AAPL) iPhone 16 launch event offered no surprises, analysts said. Wireless service providers are not expected to offer aggressive promotions to drive device upgrades.
Analysts will be looking for signs of how big the iPhone 16 upgrade cycle will be. "Attention now turns to iPhone pre-order/lead time data this Friday (Sept. 13)," said Morgan Stanley analyst Eric Woodring in a report.
The "Apple Intelligence" features will be available in beta starting next month with the iOS18.1 update. New AI features include writing tools, mail/notification summaries, and a more natural and context aware Siri.
At UBS, analyst John Hodulik said in a report: "Initial wireless carrier promos similar versus last year's iPhone launch through Apple website. We remain skeptical of a super cycle of renewals given measured hardware changes, evidence of a more rational promo environment in recent months and AI use cases likely taking time to emerge."
Meanwhile, Apple is in talks to invest in OpenAI as part of a new funding round that would value the startup at over $100 billion. Microsoft is currently the biggest investor in startup OpenAI, the leader in generative AI.
Artificial intelligence will likely be the big topic at the Goldman Sachs Communacopia & Technology Conference. For example, Google's cloud computing leader Thomas Kurian will take part in Communacopia on Sept. 10. Startup Anthropic's CEO Dario Amodei also presents Sept. 10. Nvidia CEO Jensen Huang appears Sept. 12.
AI Stocks Now A 'Show Me' Story
Also, analysts expect Salesforce (CRM) to demonstrate AgentForce, its new autonomous agent for business customers, at its DreamForce annual user conference in mid-September.
And, Oracle (ORCL) will host CloudWorld. "AI will be the theme at CloudWorld and we expect announcement of AI factory and AWS partnership," said a Mizuho Securities report.
The best AI stocks to buy span chipmakers, software companies, cloud computing service providers and technology giants. Amid increased capital spending by cloud computing giants, the big question is how much incremental AI-related revenue they're getting.
What's clear is that AI stocks are under more scrutiny.
"We expect AI to transition from a 'tell me' to a 'show me' story, with any disconnect between investments and revenue generation to come under increased scrutiny," said a Bank of America report. "
Broadcom (AVGO) stock tumbled on its fiscal Q3 earnings and outlook.
Nvidia Stock: AI Antitrust Probe?
A bellwether for AI stocks, chipmaker Nvidia reported second quarter earnings on Aug. 28. October quarter guidance underwhelmed some investors amid margin pressure.
Further, Nvidia and other AI chip stocks tumbled on Sept. 3 amid growing worries. Also, the Justice Department reportedly has issued subpoenas to Nvidia and other companies as it probes concerns that the AI chip giant is is exploiting its dominance in artificial intelligence.
Nvidia stock has climbed jumped 115% in 2024 after surging 239% last year. Further, Nvidia stock remains on the IBD Leaderboard.
Shares in Marvell Technologies (MRVL) popped on its Q2 results and outlook. Marvell is ramping up production of custom AI chips for Amazon and Google.
Meanwhile, Nvidia and Arista Networks (ANET) are squaring off in the AI Ethernet networking market. Data center gear maker Arista turned in strong Q2 results. Also, Arista stock has gained 38% in 2024.
Tech giants are spending heavily on data center infrastructure, such as AI chips and servers, as well as research and development. Capital spending boomed in the June quarter at Google, Microsoft, Meta Platforms and Amazon.
In general, semiconductor plays have out-performed software companies as the best AI stocks. But data analytics software maker Palantir (PLTR) has bucked that trend. PLTR stock has gained 101% this year.
Arista stock has dropped out of the IBD 50 roster of growth stocks while Palantir stock ranks No. 15.
AI Stocks: Software Monetization An Issue
So far, the biggest demand for AI chips has come from cloud computing giants and internet companies. Meanwhile, chip maker Advanced Micro Devices (AMD) beat Q2 consensus estimates.
Broadcom Qualcomm (QCOM), ARM Holdings (ARM), and Marvell Technologies are other AI chipmakers to watch.
One big issue for AI stocks is how fast companies ramp up pilot programs to commercial deployment.
Further, Microsoft's fiscal Q4 Azure cloud-computing growth missed Wall Street targets. Also, generative AI "Co-Pilots" have not yet boosted Microsoft's Office 365 business, analysts say.
However, ServiceNow (NOW) gained on its Q2 earnings and outlook.
Also, for most big application software companies, how to charge for AI-related products has been an issue.
Further, most enterprise software makers will not monetize generative AI, or "conversational AI," in a material way until late 2025, some analysts say. Many U.S. companies are pursuing custom AI software development projects, which will take longer to ramp up commercially.
Meanwhile, here's a look at the enterprise AI market.
Also, AI technology uses computer algorithms. The software programs aim to mimic the human ability to learn, interpret patterns and make predictions.
Until recently, machine learning was largely limited to models that processed data to make predictions. The AI models focused on pattern recognition from existing data. Corporate spending on AI projects was modest as companies mulled return on investment.
AI Stocks To Watch By Industry Group
| Company | Symbol | Comp Rating | Industry name | AI angle |
|---|---|---|---|---|
| Nvidia | (NVDA) | 87 | Elec-Semiconductor Fabless | Cloud computing giants buying more chips to train AI models or run AI workloads. Big lead over rival Advanced Micro Devices (AMD). |
| CrowdStrike | (CRWD) | 61 | Computer Software-Security | AI chatbots expected to automate more functions in security-operations centers and reduce the time to detect computer hacking. |
| Arista Networks | (ANET) | 94 | Computer-Networking | Sells computer network switches that speed up communications among racks of computer servers packed into "hyperscale" data centers. With AI growth,internet data centers will need more network bandwidth. |
| Microsoft | (MSFT) | 67 | Computer Software-Desktop | Biggest investor in generative AI startup Open AI, whose ChatGPT users require Azure cloud services. Microsoft's business AI assistant, Office 365 Copilot, will have general availability on Nov. 1. |
| Salesforce | (CRM) | 67 | Computer Software-Enterprise | Integrating conversational AI assistants within the user interfaces of all Salesforce apps.Expected to use a mix of subscription and consumption-based pricing. |
| Amazon.com | (AMZN) | 87 | Retail-Internet | Alexa smart assistant lags in chatbot technology. Cloud computing unit working with OpenAI rivals Anthropic, Hugging Face and Falcon 40B. |
New generative AI models process "prompts," such as internet search queries, that describe what a user wants to get. Generative AI technologies create text, images, video and computer programming code on their own.
Companies will aim to boost productivity by developing customized AI for specific industries. Proprietary company data will be used to train AI models.
AI systems require massive computing power to find patterns and make inferences from large quantities of data. So the race is on to build AI chips for data centers, self-driving cars, robotics, smartphones, drones and other devices.
Will AI Startups Challenge Tech Giants
For chipmakers, analysts expect a market for "edge AI" — on-device processing of AI apps to emerge.
While "training" AI models is now the biggest market for chipmakers like Nvidia, the market will shift to "inferencing," or running AI applications, in the long run.
What's more, one key question for investors is whether tech industry incumbents will be the big generative AI winners. Or, will a new wave of AI startups eventually dominate? OpenAI has told employees its now on an annual revenue run-rate of $3.4 billion, up from $2 billion in January.
Large language models provide the building blocks to develop applications. Further, LLMs help AI systems understand the way that humans write and speak. Also, LLMs require training data for specific tasks. Companies with access to troves of data hold an edge.
OpenAI is part of a wave of LLM startups that includes AI21 Labs, Anthropic and Cohere. Anthropic introduced Claude 3, the newest version of its chatbot, and claimed its performance is better than OpenAI's GPT-4.
However, OpenAI's dominance faces a challenge from open-source LLMs. Musk's xAI announced it will open source its Grok LLM, and released the source code for public use.
Follow Reinhardt Krause on Twitter@reinhardtk_techfor updates on artificial intelligence, cybersecurity and cloud computing.
YOU MAY ALSO LIKE:
Want To Trade Options? Here Are The Basics To Get You Started
IBD Digital: Unlock IBD's Premium Stock Lists, Tools And Analysis Today
Learn How To Time The Market With IBD's ETF Market Strategy
Monitor IBD's "Breaking Out Today" List For Companies Hitting New Buy Points
IBD Live: A New Tool For Daily Stock Market Analysis
