Artificial intelligence (AI) is one of the fastest-growing markets in the world, with global revenues zooming from $58.3 billion last year to an estimated $309.6 billion in 2026. And artificial intelligence stocks are suddenly all the rage, almost single-handedly jump-starting the new bull market we’ve entered this month.
But you can’t just invest in the usual suspects. Those include the likes of Alphabet (GOOG), Microsoft (MSFT), IBM (IBM), Salesforce.com (CRM) and Nvidia (NVDA), the latter of which is up 185% year to date! Don’t get me wrong—those are all fine companies and have been great investments (to varying degrees), especially through the first five-plus months of 2023. But they’re not pure artificial intelligence stocks, per se; in other words, they’re large and diversified enough companies that AI is just one segment—albeit a fast-growing one—of what they do.
The purer artificial intelligence plays are less diversified and highly levered to the AI boom. And given the recent uptick in AI development and integration (like OpenAI’s ChatGPT, which caused 20% of S&P 500 companies to mention AI in their most recent earnings report) it’s certainly something that warrants exploring.
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As the global AI boom gains steam in the coming years, these artificial intelligence stocks (or AI stocks, for short) should continue to outperform. Best of all, they’re flying under the radar compared to some of their mega-cap peers, and therefore can still be had at a discount right now even after their recent surge.
3 Artificial Intelligence Stocks to Buy
Artificial Intelligence Stock #1: ServiceNow (NOW)
If you don’t own shares of NVDA and thus haven’t benefitted from its relentless rally this year, perhaps you can capture Nvidia-like growth by investing in the smaller, lesser-known company that just partnered with Nvidia. Granted, ServiceNow isn’t exactly a minnow – it’s a $113 billion market cap software company that’s been in business for two decades. But it’s about to get much bigger, thanks to its new deal with Nvidia to develop generative AI for corporations – namely their IT departments, customer service branches and human resources.
ServiceNow’s Nvidia deal is just its latest – and biggest – AI-centric deal. As our Mike Cintolo recently noted, “Just since the start of May, the company has acquired G2K, an AI player that connects real-time, in-store data across storefronts; launched an AI-powered employee talent system that should help firms tailor skills management to their workforce’s needs and strengths; and, most importantly, it inked a partnership with Nvidia to use that firm’s infrastructure to build enterprise-grade generative AI capabilities into its suite of software, ideally boosting productivity of IT professionals. There’s also been a tie-in with Microsoft Azure OpenAI service.
“While it’s hard to quantify, Wall Street’s hopes are high that these and future new AI-related offerings will add some juice to an already-strong growth story.”
NOW stock has plenty of momentum, up 48% year to date and 67% from its October bottom. But shares are still well shy of their 2021 peak near 700, with 26% EPS growth and 21% revenue growth expected this year – estimates that may not fully factor in the benefits of the Nvidia deal yet. NOW looks very buyable right here.
Artificial Intelligence Stock #2: Splunk (SPLK)
Splunk specializes in something called “machine learning”—a form of artificial intelligence. Specifically, Splunk provides artificial intelligence for information technology (IT) operations, enabling organizations to reduce costs by automating normal IT functions (without having to hire an entire IT department).
Splunk’s sales rose by double-digits every year for a decade before dipping -5.8% in FY 2021 due to Covid; however, that was clearly a blip – revenues bounced back to 20% growth in FY ’22 and tacked on another 36% in the recently completed FY ’23. This year (FY ’24) analysts are looking for 7% revenue growth, with another 12.8% improvement in FY ’25. Even better, the company is finally on the verge of turning profitable.
As for the stock, SPLK is up 58% since October’s tech lows, but still trades at less than half its August 2020 highs above 220. The stock appears to have bottomed in the low 80s in early May and is now full steam ahead toward its February high (109). Given that SPLK trades at less than half its all-time peak in the midst of a run on artificial intelligence stocks, this looks like a bargain.
Artificial Intelligence Stock #3: Tencent Holdings (TCEHY)
Chinese stocks have been out of favor in recent years, dragged down first by the trade war and then when the coronavirus outbreak began in China. But Tencent Holdings stock has held up well. And now China has finally reopened for business.
China’s biggest social media company—inventors of the WeChat app—Tencent recently built an artificial intelligence lab in Seattle, with the intent of expanding its voice-to-text and virtual assistant offerings. TCEHY stock, meanwhile, is basically flat since the March 2020 pandemic lows.
But the worst appears to be over for this stock, as it’s actually up 78% from its bottom around 25 in October. With earnings expected to improve 41% this year and the stock trading at a reasonable 20 times forward earnings, and shares poking their head above the 50-day moving average for the first time in two months, both the chart and the math suggest the next big move is likely to be up. TCEHY looks like it’s worth a nibble at current prices.
It’s worth considering adding these three top AI stocks to your portfolio, especially ServiceNow, which appears to be in the midst of a more meaningful rebound. Bigger picture, the AI trend has been a boon for these stocks and could be even better in the coming years as the global AI marketplace becomes increasingly mainstream, and the global economy recovers.
Do you own any artificial intelligence stocks not listed above?
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Note: This post has been updated from an original version, published in 2019.
