Despite the adverse impact of the novel coronavirus, AI stocks have fared relatively well. Consider the Global X Robotics & Artificial Intelligence (NASDAQ:BOTZ) ETF. For 2020, the fund has returned about 6%.
The interesting thing is that until about 10 years ago or so, AI was mostly a backwater. Let’s face it, investors were more interested in areas like cloud computing.
But there would emerge some major catalysts that would make AI a must-have. There were breakthroughs in the underlying algorithms, such as deep learning. They would lead to vast improvements in accuracy — making it possible for much better image and facial recognition systems.
It also helped that there was substantial growth in the availability of data as well as the ubiquity of open-source tools, which made it easier for anyone to create AI models.
OK then, so when looking ahead, what are some of the interesting AI stocks that should continue to benefit? Where are the opportunities? Well, let’s take a look at three.
- Nvidia (NVDA)
Regarding AI stocks, the attention is often on software. Yet hardware is critical — and also a lucrative market.
A standout player in the segment is Nvidia. Founded in the early 1990s, the initial focus was on the gaming market. The core technology, called the GPU (Graphics Processing Unit), allowed for more immersive graphics.
But interestingly enough, the technology would also prove effective for AI applications. The main reason: the chips make it possible for parallel processing at high speeds. For example, a CPU-based platform may train a sophisticated AI model in months while a GPU could do it in days or weeks.
Through much of Nvidia’s history, the strategy has been to build the technology in-house But this is starting to change. Consider that the company recently shelled out $6.9 billion for Mellanox. Founded in 1999, the company has become a leader in building systems for high-compute environments, such as in the data center. This is definitely critical for AI development. So yes, the deal should help supercharge Nvidia even more.
In the latest earnings call for Nvidia, CEO Jensen Huang said: “The basic computing elements are now storage servers, CPU servers, and GPU servers and are composed and orchestrated by hyper-scale applications that are serving millions of users simultaneously. Connecting these computing elements together is the high performance Mellanox networking. This is the era of data center scale computing and together, Nvidia and Mellanox can architect end-to-end.”
- Microsoft (MSFT)
When it comes to AI stocks, Microsoft is certainly not a pure-play for the technology. But CEO Satya Nadella has been working hard to retool with existing applications and platforms. It’s smart that he first made sure to create a robust cloud infrastructure, allowing for centralization of data. While Amazon (NASDAQ:AMZN) remains the leader, Microsoft is now No. 2 and continues to gain momentum.
Now, the company does have some inherent advantages for AI. Microsoft has a massive base of corporate customers, huge data repositories and thousands of talented engineers in cutting-edge research and development. The company has also been willing to make big bets, as seen with acquisitions of LinkedIn and Github.
Yet perhaps the most important key, though, is the willingness to take the long view. Just look at the $1 billion investment in OpenAI, whose mission is to build “Strong AI” systems. This involves innovations where machines can be creative and make sound judgments.
But to make this a reality, there needs to be enormous computing power. To this end, Microsoft and OpenAI have partnered to build an Azure-based supercomputer, which is one of the top five in the world. It has more than 285,000 CPU cores and 400 gigabits per second of network connectivity for each GPU server. With this, it is possible to train models with billions of parameters.
According to a quote from Microsoft Chief Technical Officer Kevin Scott in the Microsoft blog: “This is about being able to do a hundred exciting things in natural language processing at once and a hundred exciting things in computer vision, and when you start to see combinations of these perceptual domains, you’re going to have new applications that are hard to even imagine right now.”
- Dynatrace (DT)
Dynatrace is one of the smaller AI stocks, with the market capitalization at a little over $10 billion. But the growth potential looks bright.
The company’s systems help enterprises to better manage the complexity of their IT environments. Here’s how Dynatrace explains it in its latest 10-K filing: “Our platform utilizes artificial intelligence at its core and continuous automation to provide answers, not just data, about the performance of applications, the underlying hybrid cloud infrastructure, and the experience of our customers’ users. We designed our software intelligence platform to allow our customers to modernize and automate IT operations, develop and release high quality software faster, and improve user experiences for better business outcomes.”
Then how big is the opportunity? Based on a recent investor presentation, the TAM (Total Addressable Market) is more than $20 billion. To put this in perspective, Dynatrace’s annual revenues are $545.8 million. So there is still quite a bit of room left for growth.
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