Buyers face numerous considerations when adjusting their portfolio at the onset of a new year. Artificial intelligence (AI) companies emerged as top performers in 2023, garnering significant attention as the new fiscal year unfolds.
While there is a prevailing belief that AI stocks will maintain exceptional performance and outperform the market in 2024, this outlook may not universally apply. Some investors express concerns about certain companies within this sector experiencing unsustainable price surges. While select businesses in the industry have indeed surpassed revenue and earnings expectations, this trend is not ubiquitous.
Let’s now delve into three AI companies that investors should monitor closely in 2024. For those planning to hold these companies for an extended period, long-term investment may prove beneficial.
Nvidia (NVDA)
Nvidia (NASDAQ: NVDA) has been at the forefront of the generative AI surge, supplying essential tools to the sector. The company’s cutting-edge GPUs are indispensable for AI training and operations in data centers.
Demand for Nvidia’s products is soaring, signaling a sustained upward trajectory. In Q3, Nvidia’s revenue surged by 206% to \(18.1 billion, primarily driven by sales of high-margin products like the \)30,000 H100 data center chip. This growth is expected to be fueled by such innovations.
With a shift in consumer preferences towards premium Nvidia GPUs, the company’s Q3 net profit margin rose from 46% to 51%, resulting in a 588% profit increase to $10 billion. Nvidia’s advancement positions it as a potential global powerhouse.
Despite dominating 80% of the data center market pre-AI boom, doubts linger regarding the company’s ability to meet the escalating demand for AI chips swiftly. This presents an opportunity for competitors.
Analysts forecast a 65% earnings increase this year, despite trading at 65 times trailing revenue and 44 times forward income. The consensus target price stands at $668.11, indicating a 34% stock price surge. Out of 52 analysts, 42 rate NVDA shares favorably, aligning with a positive outlook on the company’s trajectory.
(MSFT) Microsoft
My perspective on Microsoft (NASDAQ: MSFT) remains cautious, despite its stature as a global software and technology giant. The company has established a robust foundation in traditional sectors and continues to lead in burgeoning tech domains.
Microsoft swiftly integrated AI into Teams, Office, and Copilot tools, showcasing its leadership in the AI realm. Nuance Dax automates personal interaction records in healthcare settings. Analyst Dan Ives has set a $450 price target for Microsoft, underlining confidence in its AI prospects.
However, other analysts exhibit a more reserved stance, factoring in substantial benefits. Microsoft’s substantial investments in OpenAI and the potential of AI-related initiatives, such as extensive language models, contribute to this outlook.
Apart from AI, Microsoft plays a pivotal role in cybersecurity, a critical aspect amidst escalating ransomware threats and revised SEC disclosure regulations. The company’s emphasis on quantum computing and AI, driven by a high-risk, high-reward R&D strategy, positions it as a key player in the AI landscape for the foreseeable future.
Alphabet (GOOG, GOOGL)
Alphabet, the parent company of Google, is diversifying its portfolio beyond its core search business and YouTube. (NASDAQ: GOOG, NYSE: GOOGL). Apart from its primary offerings, Alphabet has emerged as a significant player in the AI domain, making it a compelling investment for many.
CEO Sundar Pichai underscores Alphabet’s success in integrating AI across its ecosystem. The company’s Wing delivery drone network, resembling an intelligent data system, represents a notable advancement. Alphabet is in discussions with UK regulators to process a multitude of orders through this innovative system, setting the stage for future developments.
Additionally, Alphabet has established a Quantum Artificial Intelligence Lab in collaboration with NASA and the Universities Space Research Association. This initiative includes Cirq, a Python-based tool for constructing classical circuits, and encompasses applications that extend to quantum computing. Google remains actively engaged in advancing quantum technology alongside software development.
Alphabet stands out as a diversified tech giant with a strong foothold in AI, akin to the other companies mentioned. Should the bullish market trend persist in 2024, the company’s core AI capabilities could serve as a significant growth driver for investors.
