You may be hearing the word “AI bubble” a lot these days, especially regarding the stock market. Since OpenAI released its artificial-intelligence (AI) chatbot ChatGPT in Nov. 2022, it feels like every company in the world has been getting into the AI business.
Machine learning is a type of AI that allows computers to learn and reproduce how humans learn and use that to replicate their behaviors. As you might imagine, machine learning has the potential to decrease the cost and time of human tasks and eliminate redundant work.
Companies are set to save billions of dollars by integrating machine learning tools and software in their businesses. As investors, not only is it important to look at which companies are successfully using machine learning, but also the companies that are providing these tools to be used. This article will discuss three of the top machine-learning stocks to buy while the AI industry remains red-hot.
Nvidia (NVDA)
NVIDIA (NASDAQ:NVDA) is the global leader when it comes to producing GPUs that can power machine-learning computers. The stock has been on a tear over the past year, returning north of 240% to shareholders, while surging up the list of the world’s most valuable companies. Despite such unprecedented growth, Yahoo Finance analysts still remain optimistic for with with a one-year target between an average of $852.10 to a high of $1,400.0.
When it comes to machine-learning GPUs, NVIDIA is second to none in the semiconductor industry. NVIDIA has more demand for its chips than it has supply even at elevated prices, an its customers include some of the most powerful companies in the world.
You might think that a stock that has risen by more than 240% in one year is overinflated. The fact is, that NVIDIA’s revenue has grown so fast that its growth has kept pace with its stock valuation. Looking comparatively, NVIDIA’s forward P/E ratio of 34.25x is still lower than the likes of Amazon and Tesla. As long as AI and machine learning are being adopted, NVIDIA’s stock should continue to reap rewards for investors.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) is a company that needs no introduction. It is the largest manufacturer of electric vehicles in the world and single-handedly revolutionized the auto industry. While its stock has lagged behind its other Magnificient 7 counterparts in 2024 due to high-interest rate environments, its consensus one-year price target still aims for a high of $345.00.
So, how does an electric vehicle company operate in the machine-learning industry? Tesla, led by CEO Elon Musk, has long been trying to master self-driving technology. Tesla’s FSD or full self-driving software has had some roadblocks from regulatory agencies like the NHTSA in America, but Musk remains confident that it will be available to all Tesla users in the future.
Tesla’s stock still trades at a premium, especially since the company has reported declining operating margins and fairly stagnant revenue growth. The forward P/E ratio of the stock shows that TSLA is trading at about 65x forward earnings, which is nearly double that of NVIDIA. As mentioned, Tesla’s stock could continue to struggle until interest rates begin to decline. Savvy long-term investors might be taking this period of consolidation as a time to load up on the high-growth stock.
Palantir (PLTR)
Palantir (NYSE:PLTR) is a data analytics and software company that has a very polarizing following on social media. At one time, Palantir was looked at as a meme stock, but the company has since proven to be profitable and has exhibited impressive growth.
While the operations of Palantir have always been shrouded in mystery, the company has made clear progress in growing its customer base over the past few years. One of the ways it has done this is by introducing its AIP or Artificial Intelligence Platform. AIP uses machine learning to help large-scale enterprises unluck insights from large sets of data. From this analysis, companies can identify inefficiencies and operate at a higher level.
We did mention Palantir’s stock is trading at the high end of analyst estimates, right? Well, although it is a much smaller company, Palantir’s valuation currently dwarfs that of both NVIDIA and Tesla. At its current price, Palantir’s stock trades at about 25x sales and 79x future earnings. With the potential to be considered for S&P 500 inclusion later this year, and management guiding a FY2024 revenue of around $2.6 billion, Palantir is a worthy company to look into capitalizing off machine learning.
On the date of publication, Ian Hartana and Vayun Chugh 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.
