Artificial Intelligence (AI) and machine learning have proven instrumental in driving the stock market to historic highs recently. It all goes back to the release of OpenAI’s machine learning chatbot ChatGPT, which took everyone by surprise last year and the stock market with it. The result? The tech-heavy S&P 500 index gained a remarkable 30% in 2023 despite the broader market headwinds. Additionally, with AI moving rapidly, investors are salivating over the future of machine learning stocks.
Machine learning essentially involves the development of systems that learn and evolve through experience. These systems gain insights from customer data, past mistakes, and various experiences in making decisions. Perhaps the most common example is generative AI, a branch of machine learning that effectively powers ChatGPT. Therefore, betting on stocks with exposure to these technologies could pay many dividends over the long term.
Machine Learning Stocks: ServiceNow (NOW)
AI-based subscription business ServiceNow (NYSE:NOW) leverages machine learning to automate routine tasks, predict outcomes, and improve user experiences. The goal is to ensure their massive customer base can improve workplace productivity without worrying about mundane tasks. This business model has proven mighty effective, with NOW’s year-over-year (YOY) revenue and EBITDA growth at 24% and 68%, respectively. Moreover, forward estimates point to a similar trajectory, which bodes remarkably well for its investors. In fact, its shareholders have been laughing their way to the bank in the past year, with NOW stock gaining almost 79%.
The company developed and introduced 15 new generative AI tools in the past year while achieving up to 40% productivity gains. Moreover, 2023 was another solid year for its business, having beaten analyst estimates across both lines in each quarter. Its fourth-quarter (Q4) report showed a 25.62% YOY gain to $2.44 billion, beating estimates by $35.27 million. Moreover, its EPS of $3.11 bested forecasts by 33 cents. Following its earnings release, Goldman Sachs, BofA Securities, and UBS reiterated their ‘buy’ rating on the stock.
Palantir Technologies (PLTR)
Palantir Technologies (NYSE:PLTR) is a giant in big data analytics, leveraging machine learning to enhance decision-making and subsequent outcomes. Machine learning is critical for its business in analyzing endless datasets from multiple sources to detect anomalies, predict events, and optimize operations for its clientele. Therefore, AI is powering PLTR’s business, and now its stock, which shot up a handsome 204% last year, dwarfing the S&P 500’s gains.
Business has been incredible for Palantir, evidenced by the double-digit growth in its top line in the past several quarters. Q4 was another resounding success for the company, generating $608.35 million in sales, roughly a 20% jump YOY. Though eight-cent EPS came in flat, revenues beat expectations by $5.55 million.
Perhaps the most heartening result from Q4 was its commercial sales soaring 32% to $284 million. The company’s commercial business had always played second fiddle to its government contracts, but it has demonstrated impressive strength and autonomy lately. However, revenues from government contracts remain key to its long-term expansion, rising 11% to $324 million. It is one of the best machine learning stocks, in my opinion.
Nvidia (NVDA)
Tech behemoth Nvidia (NASDAQ:NVDA) is arguably the poster child of the AI renaissance. This is evidenced by NVDA stock’s scorching 240% gain last year. Moreover, it continues to turn heads with its fundamentals, marked by stunning growth across all key top-and-bottom-line metrics. Hence, with a near-monopoly in the supply of GPUs for AI processing, its long-term bull case remains incredibly compelling.
As the leading chips and semiconductor producer powering AI applications, the demand for Nvidia’s products remains as robust as ever. YOY revenue growth rates have soared past 125%, outstripping its impressive 5-year average of 29%. Consequently, its free cash flow has swelled to $10.94 per share, a whopping 615% increase from last year. Moreover, its fortress-like balance sheet boasts a total cash and short investments balance of $25.98 billion, a 95% bump from last year. Hence, it’s probably the most relevant machine learning stock you’d want to hold on to for a very long time.
On the date of publication, Muslim Farooque 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.
