Best AI Stocks

The post Best AI Stocks by Dan Schmidt appeared first on Benzinga. Visit Benzinga to get more great content like this.

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.

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Best For

Active and Global Traders

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get started securely through Interactive Brokers’s website

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Active and Global Traders

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Interactive Brokers is a comprehensive trading platform that gives you access to a massive range of securities at affordable prices. You can buy assets from all around the world from the comfort of your home or office with access to over 150 global markets. Options, futures, forex and fund trading are also available, and most traders won’t pay a commission on any purchase or sale.  

IBKR is geared primarily toward experienced traders and investors but now with the availability of free trades with IBKR Lite, casual traders can also acclimate to IBKR’s offerings.

Best For

• Access to international markets
• Active traders
• Detailed mobile app that makes trading simple
• Wide range of available account types and tradeable assets

Pros

• IB SmartRouting provides significant price improvement vs. industry
• Fractional trading allows investing regardless of share price
• Industry’s lowest margin rates
• Earn more by lending your fuly-paid shares

Cons

• Beginner investors might prefer a broker that offers a bit more hand-holding and educational resources

Best For

Leveraged Trading

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get started securely through Plus500’s website

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Disclosure: 82% of retail accounts lose money

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Leveraged Trading

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82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Plus500 is an online CFD broker focusing on contracts for difference (CFDs). CFDs are similar to binary options in the U.S. where traders take all-or-nothing speculation on the prices of certain securities like indices, commodities or currencies. While not legal to trade in the U.S., CFDs are legal in many jurisdictions across the globe and Plus500 offers a wide array of tradable markets using these instruments. 

Plus500 doesn’t charge commission and only profits off the spread, which is the difference between the buy and sell price of a specific security. But Plus500 is not a broker for beginners — the education materials are sparse and CFDs are risky derivatives capable of sapping out all of an investor’s capital. Only trade these instruments if you understand how they operate and the risks involved with buying them.

Best For

• Traders looking for a smooth mobile experience

Pros

• Great mobile app
• Low spreads and commissions
• Unlimited demo account

Cons

• Only derivatives are available
• Not open to U.S. residents

Best For

Trading Ideas

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get started securely through public.com’s website

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Trading Ideas

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Public is the only investing platform that lets you trade stocks, ETFs, crypto, bonds, options and alternative assets—like fine art and collectibles—all in one place. Public also provides access to custom company metrics, live shows about the markets, and insights from a community of millions of investors, creators, and analysts.

Today, Public provides more ways to create a diversified portfolio than nearly any other online broker. Members can engage in sophisticated investing strategies and access a wealth of investing insights—from company-specific analysis to live audio shows and town hall-style Q&As. In addition, Public offers a premium membership tier with unique company KPIs, detailed performance metrics, and institutional-grade research. 

 

Best For

• Stock and ETF investors
• Crypto investors
• Investors looking to diversify with alternative assets or bonds and options

Pros

• Commission-free stock and ETF trading
• Fractional share investing
• Advanced data, tools, and insights with Public Premium

Cons

• You can’t transfer crypto to another wallet
• No mutual funds or precious metals
• At this time, only offers individual brokerage accounts and not IRAs

Best For

Beginners

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get started securely through Robinhood’s website

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Beginners

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Robinhood is a popular trading platform known for its commission-free trades and user-friendly mobile app. Ideal for novice investors, Robinhood makes it easy to buy and sell stocks, ETFs and cryptocurrencies. The platform offers a straightforward, no-frills experience, making it accessible for users new to investing. With features like fractional shares and a sleek interface, Robinhood lowers the barriers to entry for investing, allowing users to start with just a few dollars. It lacks the advanced tools and research options that more experienced investors might seek. Overall, Robinhood is a great choice for beginners seeking a simple way to invest.

Best For

• Beginners looking for simplicity
• Mobile-first investors
• Commission-free trades

Pros

• User-friendly mobile app
• Instant double
• Cash management
• Access to cryptocurrencies

Cons

• Limited research tools
• No mutual funds available
• Basic customer support options

Best For

Active Short Sellers

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get started securely through TradeZero’s website

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Active Short Sellers

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TradeZero is an online broker and free stock trading platform that provides everything you need to successfully share and trade, including round-the-clock customer support. TradeZero provides four different trading state-of-the-art software programs with its services, a locator for sourcing shares for shorting, commission-free trades, and real-time streaming, to name a few of the features promoted on their website. The software is a unique and (potentially) affordable option for anyone interested in stock trading.

Best For

• Traders seeking high transparency and mobility in a stock trading program
• Those attracted to commission-free trades
• Those seeking a free version of a high-quality trading program

Pros

• 24/7 live customer support
• Uses ZeroWeb technology, a powerful level 2 online platform with direct market access
• Mobile app allows users to access stocks and trade in real-time while on the go

Cons

• Enforces Pattern Day Trading restrictions (accounts need to maintain a daily equity balance of at least $25k)
• Mobile app could offer more features

The post Best AI Stocks by Dan Schmidt appeared first on Benzinga. Visit Benzinga to get more great content like this.