3 Stocks For Savvy A.I. Investors
Artificial Intelligence is now fully integrated into modern daily life, but there is more to A.I. than just robots and self-driving cars.
A.I. has been in popular culture since the 1920s and, 100 years later, Artificial Intelligence is now a reality. I even bought a small robot for my little sister for her birthday last year. But aside from robots and the general fear that they will take over the world and enslave us all, A.I. is now so prevalent in our day-to-day lives that without it we would find ourselves at a bit of a loss. Everything from email-filtering to mobile-banking and even the Netflix (NASDAQ: NFLX) algorithm that keeps telling me to watch RuPaul’s Drag Race are all examples of A.I. that help make our lives simpler.
Between now and 2025, the A.I market is expected to grow 42% annually. With the ‘Big Five’ Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Google (NASDAQ: GOOGL) all investing in A.I. technologies and products, spending is expected to rise from $37 billion in 2019 to $97 billion by 2023 — although I would fully expect this to skyrocket even further in a post-COVID-19 era.
As well as being touted as a recession resilient industry, there isn’t much to stop you from investing in A.I. So here are three companies worth considering as a long-term investment.
No A.I. stock list would be complete without Nvidia (NASDAQ: NVDA). One of the top names in the market at the moment, this company is strong on many levels. It generated $4.2 billion in free cash flow last year, up 35% from 2018. Nvidia has outperformed expectations repeatedly over the past 5 years, growing by 990% in that time whilst the company currently pays dividends $0.64 per share.
Nvidia is primarily known for the production of graphics processing units (GPUs) which are sought out for gaming computers. Its dominance in GPU production gives it an edge in the A.I. market as GPU technology is becoming increasingly more important. This leaves other companies, like long time rival Advanced Micro Devices (NASDAQ: AMD), to scramble for the 10% of the data center market that Nvidia doesn’t occupy.
Nvidia boasts many clients to its name, such as Sony (NYSE: SNE), Toyota (NYSE: TM), and Tesla (NASDAQ: TSLA). Yet this market is beginning to become saturated with start-ups as well as encouraging the likes of the ‘Big Five’ to develop their own A.I. chips. Nvidia will see some competition in the next few years.
Twilio (NYSE: TWLO) is a stock to keep an eye on. As a communications and cloud network platform, it has plenty of space in which to expand. In its most recent earnings call, Twilio exceeded investors’ expectations as its revenue increased by 57% year-over-year, from $233 million to $365 million, causing the stock to jump 25% directly after.
The company plans to spend big, scooping up as much of the market as it can. This will likely lead to short term losses, but long term gains. With its acquisition of SendGrid — an email and communications platform — and the development of Twilio Flex — a programmable contact and customer interaction center — the company can sell both to new customers. As the A.I. market is set to become more and more important, providing a range of services is a good way to tap into the market potential.
Twillio also has several big names under its belt. And whilst the likes of Uber (NYSE: UBER), Lyft (NASDAQ: LYFT), and Airbnb are suffering the coronavirus fallout, its other clients such as Netflix, Shopify (NYSE: SHOP) and Hulu are currently winning in a pandemic affected world.
Splunk (NASDAQ: SPLK) provides companies with ‘Machine Learning’ which can automate everyday I.T. functions without the need for a full I.T. team, essentially providing machine data-analysis. This reduces costs in operations and in personnel. Splunk has seen good growth every year for the last decade, with revenue increasing an average of 35% annually since 2017.
Splunk does run at a loss, which could be a cause for concern, but so too do many other technology companies — Twilio for example. However, spending big now will ensure a profitable long-term outcome. Additionally, Splunk recently transitioned to a subscription-based model which will see a greater recurring revenue stream in time.
Splunk shows a lot of strong numbers for long-term growth and its new partnership with Google should see the company’s profitability soar into the clouds.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.