AI Cheat Sheet: The 5 Most Popular Stock Picks for 2024 Artificial intelligence (AI) promises to transform nearly every industry over the next decade. As investors look to capitalize on this enormous opportunity, a handful of stocks have emerged as the most popular choices within the AI sector.
This blog breaks down the top 5 AI stocks that analysts and investors are most bullish on heading into 2024. For each company, we’ll analyze the business model, financials, growth drivers and risks to determine if the hype is justified.
Overview of AI Stocks
Before jumping into the individual stocks, let’s briefly understand the artificial intelligence sector landscape:
- Massive Growth Potential – The AI market is projected to balloon from $93.5 billion in 2021 to over $1.4 trillion by 2029 as more companies digitally transform.
- Multiple Subsectors – AI has broad applications from cloud to chips to autonomous vehicles and robotics. Investors can pick sub-sectors matching their interests and risk appetite.
- High Valuations – Being a futuristic high-growth industry, most AI stocks trade at premium valuations well above market average. Profitability is often reinvested into expansion.
- Execution Risks – Real world adoption, regulations, talent war and intense competition makes it vital to pick companies with sound business models plus sustainable competitive advantages when investing in AI stocks.
Now let’s analyze the top 5 AI stock picks for 2024 one by one:
1. NVIDIA Corporation (NVDA)
Industry: Semiconductor
Market Cap: $550 Billion
Nvidia is a global graphics (GPU) processing behemoth that is central to AI computing. The company’s proprietary GPUs are used to power machine learning and high performance data centers in the cloud.
Nvidia hardware and SDKs allow companies to accelerate AI development across real applications like speech recognition, retail analytics, drug discovery and self-driving cars.
Some key info around NVIDIA as an AI stock investment:
Growth Prospects: Strong
via efficient semiconductors within the mid-90% range. Nvidia also has a thriving PC gaming business reinforced by the metaverse hype driving graphics card demand growth.
Overall, Nvidia is strategically positioned to maintain its status as the AI supercomputing leader through this decade. Its growth is aligned with AI proliferation both in the cloud and edge.
Competition & Risks: Medium
Older rival AMD and new entrants could gain market share as cloud AI usage increases. However, Nvidia has made smart investments in software to leap ahead with vertical solutions. Its platform ecosystem effects also raise the switching costs for developers and partners.
Regulatory scrutiny around mega mergers and Chinese restrictions are mild risks to monitor as well. But most analysts remain bullish on Nvidia’s sustained market dominance prospects.
Valuation: Expensive
Nvidia trades at a rich 2024 forward earnings multiple of ~42X at the time of writing. Investors are clearly pricing in strong top and bottom line growth for many years to come. With strong fundamentals though, the premium seems justifiable if you’re comfortable holding for 5+ years.
Verdict: Top AI Stock Pick
With technology leadership and a focused innovation roadmap for the AI compute era, Nvidia remains a top stock pick within the artificial intelligence sector. The recent 50% share price correction from all time highs also offers a good point for initiating a long term position.
2. Alphabet Inc (GOOGL)
Industry: Internet, Cloud
Market Cap: $1.35 Trillion
Google’s parent entity Alphabet is synonymous with AI both via public facing search, digital assistants plus expansive cloud and data services for enterprises.
Thanks to over 20 years of search data along with Google’s knowledge graph, no company is better poised to pioneer Conversational AI using natural language interfaces.
Here’s why GOOGL shapes up as a promising AI stock:
Growth Drivers: Dominant
- Search and digital advertising accounts for ~80% revenue with steady growth from mobile behavior shifts. AI drives better ad targeting and rivalry barriers.
- Google Cloud is already #3 globally and fastest growing. Higher margin AI for industries via Vertical AI solutions.
- YouTube Shorts leverages vision AI for curation threatening TikTok. Hardware bets in Pixel, Nest and health wearables ramping up nicely.
Google has all the ingredients – data, compute and talent advantage to maintain pole position as AI capabilities broaden. Dominant portfolio spanning consumer to enterprise apps.
Competition & Risks: Moderate
Regulatory probes around ad monopoly and controversies like biased AI are threats. But Google is proactively self-regulating to adjust as seen from its Responsible AI practices.
Bigger danger is workers unionization that can dent margins. But otherwise the moat looks solid to defend growth from Microsoft, Amazon and smaller rivals with focus.
Valuation: Reasonable
Trading at forward P/E of ~20X makes GOOGL reasonably valued relative to high growth expectations in the 20%+ range annually. The balance sheet also remains rock solid with $125B+ cash to fund moonshots.
Verdict: Core AI Stock Holding
For exposure across both consumer and enterprise AI capabilities, Alphabet is undoubtedly a foundational stock pick. Buying during periodic tech selloffs can yield great compounding over 5-10 year periods.
3. Microsoft Corporation (MSFT)
Industry: Cloud Infrastructure
Market Cap: $1.9 Trillion
While Microsoft has diversified revenue streams from Windows and Office, the real growth engine in recent years has been enterprise cloud services via Azure.
Over 75% of Fortune 500 companies use Azure Machine Learning and AI tools for building predictive analytics across finance, marketing, operations and more.
Let’s evaluate Microsoft’s investment case as an AI stock:
Growth Prospects: Strong
- Azure cloud has grown into a $60B+/year business expected to sustain 30%+ yearly growth on the back of digital transformation and AI adoption by companies.
- Dynamic 365 AI solutions seeing hypergrowth for business intelligence and customer engagement use cases like sales process automation and customer support chatbots.
- LinkedIn usage continues seeing upticks from recruitment automation usingMachine Learning techniques. Other consumer web properties like Bing leverage AI as well.
CEO Satya Nadella has steered Microsoft to pivot perfectly from legacy software to an enterprise cloud/AI powerhouse. Still plenty of room for expansion in these futuristic growth areas both domestically and abroad.
Competition & Risks: Mild
AWS leads the cloud infrastructure space currently but Azure continues gaining market share backed by strong reliability, developer functionality and hybrid deployment capabilities.
Regulatory scrutiny around cybersecurity and anti-competitive practices are potential threats. But so far Microsoft has navigated well under Nadella’s stewardship to bounce back from past missteps.
Valuation: Moderate
Trading around 26x forward earnings imputes expectation of mid-teens earnings growth. Not cheap but reasonable for a business of Microsoft’s quality. The strong balance sheet with $130B+ cash allows it to make strategic acquisitions as well.
Verdict: Reliable AI Stock
Microsoft checks all the boxes as a stable long term investment excellently leveraged towards the AI megatrend via Azure and Dynamics 365. The defensive nature also balances out portfolio volatility during market declines.
4. Tesla Inc (TSLA)
Industry: Electric Vehicles
Market Cap: $550 Billion
Among AI stocks, Tesla has a unique positioning as an automaker deeply integrating latest innovations like computer vision and neural networks into cars.
Full self driving (FSD) capabilities along with continuous OTA updates set Tesla vehicles apart from rivals. CEO Elon Musk is betting big on autonomous taxi networks in future enabled by better-than-human level AI driving algorithms.
Here is a quick rundown of Tesla’s AI prospects:
Growth Drivers: Very Strong
- 50% annual volume growth in EV sales projected next 5 years in US/China as cost parity with gas cars achieved. Model 3 and Y contributing bulk of demand. New models will expand TAM.
- FSD software subscriptions could surpass $5B yearly recurring revenue by mid decade. Chance of lucrative acquisition if autonomy hits level 4/5 capabilities before competitors.
- Additional energy generation/storage revenue from solar panel and Powerwall business. Also potential licensing of custom AI training chips.
Tesla has carved an enviable niche combining clean energy products with cutting edge autonomy efforts. As the tools improve, network effects from billions of miles of real-world driving data give it an uncatchable lead.
Risks & Challenges: High
Lofty $1T+ future valuation projection seems unrealistic to some analysts unless FSD and robo-taxis pan out profitably. Strapped near term production from both component shortages and gigafactory ramp ups.
Executional missteps like Cybertruck delays, quality issues or FSD timelines getting pushed out repeatedly can severely impact long term growth and profitability. No fallback revenue streams beyond auto and software.
Conclusion
And there you have it – the top 5 AI stocks that technology industry experts and analysts are most excited about as we enter 2024.
Each company is poised to shape the future landscape of artificial intelligence in their own unique way. While current valuations seem stretched, the long growth runway ahead justifies investing at these levels if you have a 5-10 year investment horizon.
Of course, consult your financial advisor before making purchase decisions and ensure you pick stocks aligning with your risk tolerance as well as portfolio allocation needs.
As AI adoption continues crossing the chasm globally, the picks highlighted in this AI cheat sheet have what it takes to deliver outsized returns over the years ahead.
