Stocks Powered by Explosive AI Trends

These companies are making the most of the latest in artificial intelligence. 

Vikram Barhat 19 April, 2023 | 4:11AM
Facebook Twitter LinkedIn

Robot playing piano

Rapid advances in artificial intelligence have caused much excitement but have also caused some concern. Tech billionaire Elon Musk and Apple co-founder Steve Wozniak are among many prominent people who have signed a petition calling for a halt to AI race, triggered by ChatGPT, an AI bot that can create human-like responses to questions.

As contemporary AI systems, particularly generative AI, become human-competitive, questions are being raised about their potential risk to society. Some industry observers, though, believe it’s too late to put the AI genie back in the bottle. By an estimate, the market for generative AI could be a trillions of dollars opportunity.

Understandably, many leading tech firms have taken the ‘can’t beat’em, join’em’ approach to AI. While Microsoft, Google and Baidu are creating the loudest buzz, the following companies have also gone all-in on AI and are poised to meaningfully benefit from the growing integration of AI in everyday life.

 

Adobe (ADBE) offers software and services for content creation, document management, digital marketing, and advertising. These tools are used by creative professionals and marketers to develop, manage, deliver, optimize, and engage with content across various operating systems, devices, and media. The company runs three business segments: digital media content creation, digital experience for marketing solutions, and publishing for legacy products.

Its most recent messaging to investors, particularly at Summit customer experience event, shows the company is making a big bet on artificial intelligence.

“The firm announced an array of innovations to both the Adobe Experience Manager and Adobe Experience Cloud, highlighted by its new Firefly family of generative artificial intelligence models,” says a Morningstar equity report.

Based on some short demos of product capabilities, wide-moat Adobe appears to have expanded its lead in both content creation and customer experience, the report notes. 

These capabilities will help enhance user efficiency. “The ability to describe a piece of graphical content using natural language text, have Firefly create the image, and then being able to further edit it on the fly with either further natural language prompts or by using the myriad of Adobe’s tools within Creative Cloud is impressive,” says Morningstar equity analyst Dan Romanoff, who puts the stock’s fair value at US$425, and projects five-year revenue CAGR of 11%.

 

Nvidia (NVDA) is a leading developer of discrete graphics processing units that improve computing platform performance. The company's chips are utilized across various markets, including PC gaming and data centres. More recently, the firm has expanded its focus from conventional PC graphics applications to more sophisticated and lucrative opportunities, such as artificial intelligence and autonomous driving, which capitalize on the high-performance capabilities of Nvidia's products.

By directing their GPUs towards emerging markets like deep learning and autonomous vehicles, Nvidia has successfully aligned itself with secular market trends. “Hyperscale cloud vendors have leveraged GPUs in training neural networks for uses such as image and speech recognition, large language models (ChatGPT), and other forms of generative AI,” says a Morningstar equity report.

Invidia, which regards cars as “supercomputers on wheels”, is betting big on autonomous driving. “Although this segment currently contributes relatively little to the top line, we acknowledge the opportunity Nvidia has to grow its presence in cars beyond infotainment as drivers seek autonomous features in newer vehicles,” says Morningstar Strategist Abhinav Davuluri, pointing out that Nvidia's Drive PX platform, a deep learning tool for self-driving, is being used in R&D at more than 370 partners. 

The data centre segment is expected to drive most of the firm’s future growth, “led by the explosive artificial intelligence phenomenon,” adds Davuluri, who puts the stock’s fair value at US$200.

 

The enterprise sales software company, Salesforce (CRM) offers enterprise cloud computing solutions. Its customer relationship management (CRM) technology brings companies and customers together.

The company recently launched Einstein GPT, with generative AI technology for CRM. Einstein GPT will provide AI-generated content for all customer interactions related to sales, service, marketing, commerce, and information technology.

Utilizing generative AI tech and advanced AI models from OpenAI that power ChatGPT, Einstein GPT creates personalized emails for sales staff, provides responses for salespeople, generates code for developers, among other tasks.

“Salesforce represents one of best long-term investment opportunities in software, particularly as the company should provide investors with a nice balance between revenue growth and improving profitability,” says a Morningstar equity report.

While revenue growth has slowed over time, the company’s renewed focus on margin expansion should continue to generate strong earnings growth for years to come, the report adds.

Salesforce should benefit from natural cross-selling among its Sales, Service and Data clouds, upselling more robust features within product lines.

“Salesforce is widely considered a leader in each of its served markets, which is attractive on its own, but the tight integration among the solutions and the natural fit they have with one another makes for a powerful value proposition,” says Romanoff, who puts the stock’s fair value at US$245.

 

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Adobe Inc518.74 USD-1.25Rating
NVIDIA Corp130.98 USD-0.68Rating
Salesforce Inc230.48 USD-0.63Rating

About Author

Vikram Barhat

Vikram Barhat  A Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry, Vikram also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility