Best AI Stocks

Artificial intelligence has been a scorching hot investment trend during this bull market run. And while some AI winners have slowed a bit this summer, investors and analysts remain bullish about the long-term potential of this innovative technology.

AI stocks have been volatile lately, but volatility can also present opportunities to get stocks at a reasonable price. If you’re interested in investing in AI, here are seven stocks to watch this summer.

Quick Look at Best AI Stocks:

Microsoft Corp. (Nasdaq: MSFT)

Microsoft is heavily invested in artificial intelligence, spanning various applications and research. A core focus is Azure AI, providing cloud-based AI services for businesses. Additionally, Microsoft incorporates AI into its products, like Office 365, enhancing features with intelligent assistants and automation. The company is also exploring natural language processing, computer vision, and machine learning. 

Beyond innovative technology, Microsoft emphasizes responsible AI, ensuring its developments align with ethical guidelines. Notable projects in this area include AI for Good, which addresses global challenges like climate change and hunger, and Project Alexandria, which creates a knowledge base for businesses using AI. 

From a technical standpoint, MSFT shares are trading near all-time highs but still have a reasonable 38.4 P/E ratio and a Relative Strength Index (RSI) reading of 51, well below the overbought level.

NVIDIA Corp. (Nasdaq: NVDA)

NVIDIA is one of the strongest AI stocks in the market, primarily thanks to its constantly in-demand GPUs. These GPUs have the processing power required for the most complex machine and deep learning algorithms, making them necessary tools for AI development. The firm’s focus extends beyond hardware, offering software platforms and development kits to support AI researchers.

NVIDIA’s work spans various AI applications, including self-driving cars, medical imaging, natural language processing, and video games. The company’s research arm also explores the boundaries of AI, pushing the technology forward with projects in areas like computer vision, robotics, and generative AI. For now, NVIDIA is the computational backbone for much of the world's AI advancements.

The company’s stock has seen a transcendent rise over the last two years but has been rangebound since the 10-1 stock split announcement. However, the next earnings call is scheduled for Aug. 28, which could propel shares out of the current range.

Meta Platforms (Nasdaq: META)

META has devoted significant resources to AI development in its social media platforms and the Metaverse. Their AI research focuses on natural language processing, computer vision, and machine learning to enhance user experiences. This includes developing AI models for image recognition, content moderation, and personalized recommendations.

Much of the company’s AI efforts are directed toward building the Metaverse, a virtual reality universe. This involves creating AI systems that understand and respond to human interactions within this digital environment. Additionally, META is exploring AI for augmented reality applications, such as virtual assistants and smart glasses. Other projects include the Llama 2 open-source large language model and Cicero, which claims to be the first AI to play the strategy game Diplomacy at a human level.

ServiceNow Inc. (NYSE: NOW)

ServiceNow is primarily known for its cloud-based platform that helps businesses manage workflows and IT operations. However, the company has also invested significantly in AI to enhance its platform and free up human clients for more complex tasks.

ServiceNow's AI strategy centers around intelligent automation, which involves using AI to streamline and automate various business processes. Some areas where this focus is magnified include Natural Language Processing (NLP) to understand and respond to user queries, machine learning algorithms to analyze data and identify trends, and AI-powered virtual agents to handle routine (and mundane) tasks and inquiries.

Despite not being a household name like Microsoft or Meta, ServiceNow is still a massive company with a $158 billion market cap and over $8 billion in annual revenue. The company also has an upcoming catalyst when it reports earnings on July 24.

Palo Alto Networks Inc. (NYSE: PANW)

Palo Alto Networks is a cybersecurity sector champion that heavily leverages AI to protect organizations from evolving online threats. The company utilizes AI and machine learning algorithms to analyze vast amounts of security data, identifying malicious activity patterns. This enables them to detect and prevent zero-day attacks, ransomware, and other sophisticated threats.

AI automates routine security tasks, such as incident response and threat hunting, freeing security teams to focus on more strategic initiatives. As attackers increasingly use AI themselves, Palo Alto Networks is developing defenses like Precision AI to counter these complex AI threats with other forms of AI and create a more resilient security infrastructure.

PANW shares have receded from the all-time high reached in Q1 2024, but the company remains one of the top cybersecurity innovators, and its research into AI can only enhance its efficiency. The stock’s P/E ratio is 48.2, but the 57 RSI shows that shares have yet to reach overbought territory.

Taiwan Semiconductor Co. (NYSE: TSM)

If you want to make money during a gold rush, why not sell shovels to prospectors? That’s the idea surrounding an investment thesis in Taiwan Semiconductor Co., which provides many of the other companies on this list with vital components needed for their AI processes.

AI models require immense computational power to train and operate. This magnitude of power is derived from specialized chips, which enable them to process vast amounts of data rapidly. TSM is a key player in manufacturing these chips, and its advanced semiconductor fabrication operations allow for the production of smaller, more powerful, and energy-efficient chips. 

In other words, TSM's ability to produce leading-edge chips is a cornerstone of the AI revolution. Without their advanced manufacturing capabilities, AI application development and deployment could be significantly hindered. The firm drives innovation in semiconductor technology, which in turn fuels advancements in AI.

Celestica Inc. (NYSE: CLS)

Not all AI innovation happens in large-cap firms. Shares of mid-cap electronics manufacturer Celestica Inc. have more than doubled in the last year thanks to high demand for its components that underlie AI infrastructure. But despite this rapid stock growth, the company still has a low P/E ratio of 21 and a market cap below $7 billion.

A significant portion of Celestica's AI-related work revolves around manufacturing network switches. These high-performance switches are critical components in data centers, where AI models are trained and deployed. The company's expertise in designing and producing these switches is essential for building the infrastructure required for AI applications.

Furthermore, Celestica is actively involved in developing cutting-edge networking solutions specifically designed for AI and machine learning applications. Their high-speed switches, for example, facilitate rapid data transfer within data centers, which is essential for training and deploying AI models.

What Makes a Good AI Stock?

Picking the best stocks in any particular sector or industry is challenging, especially in volatile and evolving ones like AI. Getting your investments 100% right is a practical impossibility, but you can give yourself the best odds of success by following specific rules and knowing what to look for. Here are four key factors to research when selecting the best AI stocks.

• Catalysts – A catalyst is some kind of news or event that gets a stock moving, like an earnings release, product launch, insider purchase, or upgrade/downgrade from a stock analyst. 

• Project Pipeline – What types of AI projects does the company have on its radar? Do they produce components like TSM or CLS, or are they training new models like META or PANW? Make sure your AI investments have a bright pipeline of future projects; otherwise, they could lag behind the ones that continue to expand and innovate.

• Management Team – While researching the company, don’t neglect to research the executives and managers either. Are they attracting top talent? Do they have a history of success in similar industries? Are there any skeletons in the closet that you should be aware of? Faulty leadership can sink even the most innovative companies.

• Technical Signals – Finally, if you’re looking for stocks that are about to make a big upward move, you’ll want to pay attention to technical trading signals and analysis, as well as fundamental data like earnings growth and price ratios. A breakout signal like an RSI oversold reading or a cross over the 50-day moving average could trigger a move before any major news reaches the market.

Choosing the Right Brokerage for AI Stocks

When investing in AI stocks, you’ll want to choose a broker that has access to shares and suits your style and investment goals. Here’s a list of our favorite online brokerages and what type of investor they’re best suited for.