Top AI Stocks: This Trillion-Dollar Industry Has Investors Excited for the Future

Top AI Stocks This Trillion-Dollar Industry Has Investors Excited for the Future
iStock.com/metamorworks

Top AI Stocks

The technology sector is almost always a “hurry up and wait”‘ game. Companies on the cutting edge of tech relentlessly pour years and cash into research and development, with eyes keenly focused on the long game.

When it all comes to fruition with a truly breakthrough, innovative product, tech stocks can be among the most lucrative around. And that is very much the case with the top AI stocks.

A recent spat between Alphabet Inc (NASDAQ:GOOG) and IBM (NYSE:IBM) illustrates that the race for AI stock supremacy is getting heated.

Before we get into the GOOG stock vs. IBM stock fight, let’s take a broader look at the AI sector.

Advertisement

The top AI stocks are set to be a part of a billion-dollar industry in the near future, with the opportunity for it to become a trillion-dollar industry within the next few decades. Yes, that’s trillion with a “T.”

The reason is that AI tech has the ability to radically redefine society as we know it. Much like the Internet spelled the end of the industrial age and the beginning of the digital age, AI could transition us from the digital age into a new one entirely.

McKinsey & Company says that, By 2020, AI and machine learning could help create up to $2.0 trillion in value in manufacturing and supply chain planning, as well as $2.6 trillion in marketing and sales. (Source: “Roundup Of Machine Learning Forecasts And Market Estimates For 2019,Forbes, March 27, 2019.)

Commensurate with the massive potential for gains, companies are spending immense amounts of money on this industry, eager to be the first and best when it comes to creating AI tech.

IDC projects that spending on cognitive and AI systems will hit $77.6 billion in 2022, accounting for a massive uptick from the $24.0 billion in 2018. The focus of this spending will in large part be software, with the applications crossing numerous industries, like pharmaceutical research, product recommendations, and digital assistants.

The sheer breadth of applicability of AI technology means that a company that can score a win in this arena is practically guaranteed to juice its share prices for a long time to come.

A good chunk of companies have begun implementing or searching out AI tech to bolster their businesses, with a recent IDC survey showing 47% of responding organizations having either scaled up and industrialized machine learning or started moving projects into production.

AI tech, as I mentioned earlier, is versatile, and that’s why the potential is sky-high.

Consider that the IDC study mentioned AI’s applications in pharmaceutical research (a billion-dollar industry on its own), and that AI can also be applied to customer experience and personalization innovations in marketing, another sector expected to go heavily in on AI.

Adobe Inc (NASDAQ:ADBE) found that marketing executives are prioritizing AI and machine learning-based applications and platforms to improve customer experiences.

A whopping 82% of marketing leaders are adopting AI and machine learning to improve their personalization strategies, according to a study by Adobe, while 64% are using machine learning and AI to deliver more precisely targeted content and promotions. (Source: Ibid.)

I could spend all day here enumerating all the industries that stand to benefit from AI integration, from automotive, to social media, to computers, to marketing.

AI stocks are a rare opportunity for investors to get in on the beginning of a globally revolutionary technology. And you can pretty much guarantee that many people are going to get rich by choosing the right stock.

And we’re already seeing businesses benefit from this AI tech. McKinsey & Company found that 82% of enterprises adopting machine learning and AI have seen a financial return from their investments, with the median return on investment being 17%. (Source: Ibid.)

Here’s a use case of just how impactful AI tech can be: Netflix Inc (NASDAQ:NFLX) found that, when customers search for a movie, if it takes more than 90 seconds, many of them give up.

Using AI to improve search results could keep more people using the platform (and therefore keep them subscribing month after month), leading to a potential $1.0 billion in savings per year.

The simple fact amid all these statistics and projections is that AI is the future. The undeniable, inevitable future.

And investors who want to be part of that future are going to have a lot of opportunities on the ground floor of a truly revolutionary technology.

The question, then, becomes: what are the top AI stocks and which ones are going to fall flat? I’ll begin answering that question by examining a recent spat that involved IBM and Google.

Google Stock vs. IBM Stock

Two of the largest competitors in the AI sector are IBM and Alphabet (Google).

Both companies have poured immense resources into the industry that, as I’ve outlined above, is really going to be the future of, well, almost everything.

With such a monumental fight on their hands, it only makes sense that both companies would struggle tooth and nail to emerge victorious.

While there is plenty of room for multiple AI stocks to see massive gains in the years to come, being an industry leader would naturally carry with it the perk of seeing share prices soar higher and faster than its rivals’ share prices.

Google tried to launch one of the first salvos in the AI war by claiming to have created a quantum computer that could complete complex calculations in a fraction of the time that current supercomputers could.

Google said that its “Sycamore” quantum computer performed a task in 200 seconds that the world’s greatest supercomputer, IBM’s “Summit,” would take 10,000 years to perform. (Source: “Why Two Tech Giants Are Arguing About Quantum Computers,” The Atlantic, October 24, 2019.)

The 10,000-year claim has since come into dispute, but what everyone does agree on is that Sycamore was able to do a task exponentially faster than other machines currently available.

To understand why this is so important, we have to do a quick dive into quantum computing. Quantum computing, to give you the broad strokes, is a technological frontier in that would radically speed up computational power.

You see, in current computers, calculations are performed using bits composed of ones and zeroes (computer language).

Quantum computers, on the other hand, use quantum bits (qubits) that behave according to quantum mechanics, meaning they can exist in multiple states at once.

What that boils down to is exponentially faster computing power which, in turn, is the type of horsepower that AI technologies will need to thrive. The company that is able to achieve quantum supremacy will be able to create (or license out) AI tech that would be able to achieve all the potential outlined above.

Things like machine learning and other promises in the tech sector will be kicked into overdrive the second quantum computing becomes reality.

Which makes this fight between IBM stock and Google stock all the more important.

Both stocks have had strong performances in 2019, with about 20% gains year-to-date.

Chart courtesy of StockCharts.com

Both companies have tracked relatively similarly, with GOOG stock achieving higher highs in 2019 and IBM stock largely being in lockstep in terms of ups and downs—if only to a lesser degree.

Lately, however, IBM stock has been on a strong run and has caught up with Google stock.

Like I said before, any company that makes meaningful progress in AI will likely see huge share-price gains, and both IBM and Google could very well become powerhouse AI stocks in the near future.

The question is which one is the top AI stock right now.

I believe that Alphabet’s first haymaker was thrown with its quantum computing victory. We’re still a long way off from the fight being over, but if this progress inches Google toward quantum supremacy, that could be the deciding factor in the future of AI stocks.

While we’re still likely a ways off from the end zone of AI stocks, the game is beginning in earnest now and Google has definitely gained a fair bit of yardage with its quantum computing win.

Analyst Take

No sector in the world holds as much promise right now as the AI sector. AI technology can redefine how we live our lives in the near future, something that no industry on earth can possibly hope to rival in terms of importance.

While we’re still in the early stages of AI tech and we’re going to see a lot of ups and downs before we reach the end, the next tech revolution is on its way, and investors who want to aid in that revolution (and accumulate healthy profits) would do best to closely watch the top AI stocks.

With that, GOOG stock and IBM stock are locked in a battle to determine the first true leader of AI technology. Again, while this may be years in the making, choosing the right AI stocks could lead to massive, exponential investment gains.