Artificial intelligence (AI) rapidly emerged in 2023 as the definitive, transformative force for business. Its profound influence also gives rise to unique investment opportunities. AI’s ability to mimic and even surpass human intelligence, learn from data, and make relevant decisions has the potential to enhance productivity, create entirely new markets and disrupt traditional business models.
On a practical level, AI’s ability to process vast amounts of data rapidly enables better decision-making, reducing costs and increasing efficiency. Ark Invest’s Cathie Wood estimates AI can deliver $200 trillion in global productivity gains by 2030 as adoption broadens worldwide.
AI’s versatility means it can be applied across a wide array of sectors, from healthcare and finance to autonomous vehicles and e-commerce. It offers investors a diverse and resilient investment universe to choose from. That suggests AI will foster growth, longevity and wealth for investors.
For patient investors seeking to capitalize on arguably the best next technological frontier, AI is where to pan for gold. The following three companies have been highlighted as premiere AI stocks. Two of them are AI stocks to buy. The last is one you should avoid at all costs.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) just offered investors reasons to get excited over AI’s role in its future profits. CEO Andy Jassy told analysts during its latest earnings conference call that large multinational corporations like Adidas (OTCMKTS:ADDYY), Merck (NYSE:MRK) and United Airlines (NASDAQ:UAL) were flocking to Amazon Web Services (AWS) to power their generative AI apps. Cloud business revenue grew slower than expected this quarter, but it should grow significantly going forward as AI harnesses the power AWS offers.
Amazon also announced it just launched an AI-image generator tool for advertisers. All a brand needs to do is upload a photo of its product and describe it for the tool to quickly create unique images to help customers discover the company. The e-commerce leader will also be cutting capital expenditures elsewhere in its operations to support additional spending to build out generative AI and large language models.
Yet this is only the start. Jassy pointed out that 90% of global IT spending is still on-premises. Over the next decade that’s likely to flip to the cloud. Generative AI tools are barely in the crawling stage of development, let alone walking or running. As it matures, Amazon’s industry-leading AWS will absorb a significant portion of that transformation. It makes Amazon a no-brainer AI stock to buy.
Marvell Technology (MRVL)
Where Nvidia (NASDAQ:NVDA) gets the most attention when it comes to AI chips, Marvell Technology (NASDAQ:MRVL) is a solid runner-up. Earlier this year, the chipmaker said AI revenue would double this year. CEO Matt Murphy told analysts, “Generative AI is rapidly driving new applications and changing investment priorities for cloud customers.” He forecasted Marvell’s AI revenue would at least double this year, then double again in the coming years. That’s a 100% compounded annual growth rate for the three-year period that started in 2023.
AI’s performance is exceeding expectations. Marvell forecasts it will end the current fiscal year with a run-rate of $800 million in AI revenue, well ahead of what it previously estimated. In effect, it will end this year at the point where it said it would end next year.
Yet the chipmaker’s stock is down 30% from recent highs. Several of its end markets, like data centers and enterprise customers, experienced more weakness for longer than expected. Overall revenue was down 12% year over year. Shares are still 27% higher than where they started in 2023, as AI power is what will be Marvell’s future growth trajectory.
Data centers are a key expansion area for AI going forward, and Marvell’s technology is also widely used in the automotive industry. In fact, the auto segment was one of the strongest growth areas Marvell reported last quarter. Look for the chip and equipment maker to latch onto its high-growth sectors in the future.
Upstart Holdings (UPST)
Online lending marketplace Upstart Holdings (NASDAQ:UPST) uses AI at the very core of its operations. It promises to vet more borrowers at lower risk through AI technology. The combination lets lenders extend more credit without fear of additional losses to traditional vetting techniques, even though the borrowers may have lower creditworthiness.
At least that’s how it’s supposed to work. Yet lenders are wary of extending credit in this high-interest rate environment. Upstart saw loan originations drop a whopping 64% last quarter, leading to an over 40% decline in revenue. In response, Upstart took on more originations itself — meaning it assumed more of the risk of default. It admits current economic conditions contributed 68% greater risk to the repayment performance of Upstart-powered loans.
Defaults on loans are also well above historic norms. Government stimulus checks during the pandemic made Upstart’s loan portfolio look better than it was. Now that the checks have stopped, the situation is deteriorating. It’s also going to take some convincing that Upstart’s AI technology is superior to human vetting.
Upstart Holdings’ stock is down 68% from its 52-week high (but up 78% year-to-date). Investors should avoid buying this stock at least until conditions appear more favorable to a lending environment. Upstart Holdings also needs to convince more lenders its AI models are really as effective as it maintains. At current levels, investors should stay away from this AI stock.
On the date of publication, Rich Duprey did not hold (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.
