The popularity of artificial intelligence has surged since the launch of ChatGPT in November 2022, which was developed by the AI startup OpenAI. This has resulted in the company being valued at $29 billion due to increased demand for its AI technology. Accordingly, as we saw in the dot-com boom of the late-1990s, AI stocks are proliferating, with even the most established tech names jumping aboard this bandwagon.
Now, investors must decide whether this rally in AI stocks will likely be sustained. After all, previous growth areas of the tech market have cooled significantly. For example, the hype around the metaverse has waned, with companies taking big hits for making big bets on this sector.
That said, most investors and analysts think that artificial intelligence will provide internet-level disruption. Accordingly, picking the top AI stocks to ride this long-term wave of growth is a priority for many.
Here are three top AI stocks to buy for investors seeking to add exposure to this hot area right now.
The company that holds the coveted “AI” ticker, C3.ai (NASDAQ:AI), uses AI technology in a SaaS business model for enterprise applications. It offers various AI-driven software solutions and has become increasingly popular in the AI boom.
Moreover, C3.ai is viewed as a top contender for AI investments, leading to a surge in investor interest. While this offers potential rewards, it also comes with the volatility risk accompanying such investments.
C3.ai’s sharp and precise business approach places the company in a good position to take full advantage of the AI trend. Indeed, many experts believe this exposure will lead to a continuously-rising stock price. Analysts’ estimates call for AI stock to rise 18%. That’s partly due to a prediction from C3.ai’s CEO that the AI market will soon become a $600 billion software market. With this promising future, C3.ai may become a dominant player in the industry.
C3.ai benefits from a flourishing AI industry, but as seen in the past, investors should be cautious of potential downturns. As a smaller and more agile pure-play option in the AI sector, C3.ai offers greater potential for upside growth if growth in artificial intelligence continues as predicted.
Microsoft (NASDAQ:MSFT) has been a significant beneficiary of the surge in AI this year, with its investments in OpenAI, the company behind the groundbreaking ChatGPT, making headlines.
Amid recession fears, Microsoft collaborated with customers to reduce tech spending, impacting its recent revenue, but building goodwill with clients in the long term, and with optimization limits reached, the company’s cloud growth is expected to pick up soon.
Investors are increasingly drawn to Microsoft because of its affiliation with OpenAI and game-changing AI technology, with the tech giant having invested in the AI startup since 2019, leading to the creation of Chat GPT and DALL-E 2. Microsoft’s investment in ChatGPT gives it an edge in integrating AI with cloud technology, especially in its Azure division. It improves the effectiveness of its core software products by automating certain tasks.
According to analysts at Bank of America, Microsoft’s AI capabilities have reportedly prompted Samsung to consider switching its default search engine from Google to Bing, with Apple (NASDAQ:AAPL) potentially following suit. Such a move could bring significant profits to Microsoft.
Upstart Holdings (UPST)
Upstart Holdings (NASDAQ:UPST) saw a surge in popularity during the pandemic for its AI lending platform, helping banking partners improve underwriting decisions. However, higher interest rates and a potential recession caused a decline in bank interest, and the stock is still below its October 2021 all-time high. It’s uncertain when the banks will chase as many loans as possible again.
On May 9, the company reported its Q1 results which showed a 67% YoY revenue decline and a loss of $132 million from its operations, but also highlighted a positive outlook and progress on funding. The news caused a 35% jump in shares in a single day, with the company forecasting $135 million in revenue for Q2 and expected to break even on an EBITDA basis, compared to a $14 million loss predicted by analysts.
The optimistic forecast indicates that the company’s current valuation, which is under 2.5 times its sales, may improve in the upcoming quarters.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.