Generally, when new technology is introduced, investment opportunities are speculative and risky. This happened first with personal computers, and now, with artificial intelligence (AI) and machine learning. By now, nearly every big tech company has its hands firmly inside the AI cookie jar, with most small and mid-cap companies also following suit. It’s not an overstatement to say that AI has the potential to be the biggest game-changer in technology since the internet itself.
The best AI investments will provide a platform for other tangential businesses. Not only will they be utilizing AI to better serve their customers, but they will be also building new AI-driven products and services to forever change industry dynamics. Here are our three picks for the best AI stocks to consider for your portfolio.
Alphabet (GOOG)(GOOGL)
Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) is one of the world’s largest companies and owns several dominant brands in the tech industry. These include Google Search, YouTube, and the Android operating system. Currently, the stock’s median price target of $163.12 represents a potential 10% upside from its current price.
Despite facing a couple of missteps at the start, this big tech company has been one of the first to jump right into the AI waters. Google Bard, for instance, made headlines for producing inaccurate responses that put it a level below ChatGPT. Now though, beyond simply Google Bard, Google has launched AI appliances such as Vertex AI and Project IDX to help websites, workspaces and workflow. As Gemini (a rebranded Bard) slowly becomes the leading generative AI platform integrated into Google’s suite of applications, investors can be optimistic about this company’s strength as one of the AI industry’s leaders.
Alphabet also remains one of the cheapest mega-cap stocks relative to its competitors, trading at just 22.27x forward earnings and 6.25x sales. In terms of earnings, this makes GOOGL cheaper than Tesla (NASDAQ:TSLA), Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL). Alphabet’s strength is also demonstrated by its 14 consecutive quarters of increased revenue and five-year revenue CAGR of 18%. As far as AI and blue-chip tech stocks go for us, GOOGL is a no-brainer.
Adobe (ADBE)
Adobe (NASDAQ:ADBE) is an American software company most recognized for its flagship products including Adobe Acrobat, Illustrator, and Premiere. Yahoo Finance analysts currently give a consensus average price target of about $574.00, 15% higher than today’s closing price.
When it comes to AI, you might not immediately think of Adobe. Nonetheless, the company has been leveraging generative AI to give its creative customers some of the most comprehensive artistic tools. These include the Adobe Firefly platform which will drastically grow the scale of deliverable AI-generated branded content for enterprise users and content creators. In fact, one of the early adopters of Adobe Firefly was Coca-Cola (NYSE:KO), which used the platform to create its Dreamworld campaign.
Looking at its financials, we see a stock that trades at roughly a fair value compared to its tech industry peers. However, where Adobe truly stands out is its profitability. Adobe currently has an 88.08% gross margin, over 80% higher than its sector median of 48.62%! With a 10-year net income compounded annual growth rate (CAGR) of 34% as well, we see Adobe as a profitability cash cow in the AI space.
Crowdstrike (CRWD)
Crowdstrike (NASDAQ:CRWD) is an American multinational cybersecurity company that was founded in 2011. Yahoo Finance analysts almost all rate it a Buy or Strong Buy, with a median one-year price target nearly 20% higher than its current price.
The bull case for Crowdstrike and AI is twofold. The first case is based on its Falcon platform. This platform is trained on trillions of historical security events and utilizes AI and machine learning to identify, detect, and neutralize potential threats. Additionally, Crowdstrike also has a generative AI security analyst named Charlotte that can help users with its diverse range of products. As elevated cybersecurity concerns arise due to the increase in AI used for malicious reasons, we see Crowdstrike as an investment at the forefront of solving these issues.
CRWD has already gained nearly 150% over the past 52 weeks. While its valuation is slightly elevated over its sector mean, we find confidence in its outstanding balance between growth and profitability. For instance, despite growing at a five-year revenue CAGR Of 65%, CRWD has still managed to maintain incredibly strong gross margins of over 75%!
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.
