If the
p
romises of some of
artificial intelligence’s
The most significant beneficiaries of AI might see their predictions realized as the technology dramatically transforms our world; everything could change. However, this outcome isn’t guaranteed. It’s possible that those promoting technological advancements may have exaggerated the capabilities yet again. Regardless, even if the actual outcomes fall short of all expectations, AI can still drive substantial economic effects.
It’s not only technology CEOs who are making ambitious assertions. The International Monetary Fund predicts that 40% of worldwide jobs could be impacted by artificial intelligence, with this figure climbing to 60% in “developed nations” such as the U.S. Moreover, one of the leading four auditing companies, PwC, estimates that AI has the potential to contribute $15.7 trillion to the world economy by the year 2030.
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However, simply being involved in AI does not guarantee a solid investment choice. History has shown us that following major technological shifts, numerous seemingly attractive businesses often end up being left behind once things stabilize. Therefore, I would like to share my top two AI stock recommendations for this month — along with one you might want to avoid.
Meta possesses a distinctive edge.
Meta Platforms
(NASDAQ: META)
Meta, the parent company behind Facebook and Instagram, is well-placed to leverage the capabilities of artificial intelligence. Why? It boasts an enormous, deeply involved user base like no other. Through its suite of applications known as the “family of apps,” Meta announced over 3.4 billion active users.
daily
Active users for this quarter have increased by 6% compared to last year. This substantial user base provides Meta with the opportunity to concentrate on enhancing their artificial intelligence capabilities without needing to develop a new audience.
This aspect is also responsible for making Meta’s main source of income—advertising, which constitutes 99% of its earnings—incredibly lucrative. Over the last five years, the company’s revenues have increased at a double-digit rate four times, and they’re currently leveraging AI to push this growth even further. Meta is implementing this technology to enhance ad targeting and provide advertisers with innovative tools designed to boost the effectiveness of their advertisements while reducing production costs. According to recent reports, these initiatives raised conversion rates by 5% in the most recent quarter—a number expected to increase as the AI models continue to develop.
In the future, Meta is counting on artificial intelligence to shape the way individuals engage with technology. According to the firm, their Meta Glasses represent an optimal design for integrating AI capabilities, and they’re working on a voice-driven assistant designed for quick response times to enhance these devices. Should this endeavor prove fruitful, we might witness these intelligent spectacles transitioning from being mere curiosities to becoming essential tools, potentially usurping smartphones as the go-to device for numerous consumers.
Finally, Meta stock happens to be one of the most attractively priced among its big tech peers, trading at 23 times earnings. While that’s not necessarily cheap, by tech standards, it’s more than reasonable.
NVIDIA remains the champion.
No company dominates the AI GPU market like
Nvidia
(NASDAQ: NVDA)
, and the rewards have been massive. Fueled by surging chip sales and continued demand, Nvidia has maintained and even expanded its impressive margins over the last few years — although these do seem to have found an upper limit in the mid-50s. Its chips are still miles ahead of those from its closest competitors, and its incredible free cash flow means it can spend lavishly on research and development to maintain its edge.
Despite its superior hardware, NVIDIA’s biggest advantage might lie in the realm of software. The company’s CUDA platform—a programming interface that lets developers use GPUs for intricate operations not originally intended, such as those required for artificial intelligence—plays a crucial role in making GPU usage viable for AI applications nowadays. Although similar software solutions do exist, CUDA has become an industry standard.
Much of the AI software is built to function using CUDA, which makes it highly expensive and intricate for consumers to change to a different hardware supplier. Such a shift would require them to redesign their current software to be compatible with the rival’s version of CUDA, potentially necessitating the recruitment of an entirely new team of engineers. This high cost creates what we call “stickiness,” ensuring client loyalty and willingness to pay more. Consequently, this strengthens Nvidia’s leading role in the AI chip industry.
There are genuine obstacles in the way, however, I believe Nvidia has demonstrated its capability to innovate and adjust, and considering its stock is currently trading near one of its lowest points,
price-to-earnings ratios (P/E)
after many years, I believe
Nvidia remains an excellent choice.
.
Palantir has great potential as a company, however, its stock comes with a price tag that is currently too high.
Palantir Technologies
(NASDAQ: PLTR)
, an AI-driven intelligence and analytics firm, stands out as an excellent investment across most metrics. This pioneering business consistently achieves double-digit growth alongside increasing profit margins, with substantial market demand for its offerings. Its service’s impact on client success is unquestionable.
Nevertheless, the price of its stock is exceptionally high — an understatement even. The company’s shares have a Price-to-Earnings ratio close to 500, making them over twelve times pricier compared to Nvidia’s stocks, despite Nvidia experiencing quicker growth in both revenue and profitability. This makes Palantir’s valuation appear completely detached from current market realities. Thus, I strongly advise steering clear until the share price drops considerably.
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Randi Zuckerberg, who previously served as a director of market development and spokesperson for Facebook and is the sibling of Meta Platforms CEO Mark Zuckerberg, sits on The Motley Fool’s board of directors.
Johnny Rice
does not hold any shares in the companies listed above. However, The Motley Fool holds stakes in and endorses Meta Platforms, Nvidia, and Palantir Technologies. They also have a
disclosure policy
.
