In theory, artificial intelligence is concerned with machines that mimic human intelligence. In general, this technology will be a distinguishing trend of the next decade, playing a larger role in our daily lives as time goes on. AI is currently present in search engines, social media platforms, and enterprise software applications. However, in the future, we may ride in self-driving automobiles, interact with intelligent machines, and collaborate with autonomous robots.
As an investor, you have a few options for capitalizing on this trend. This type of investment is known as a pick-and-shovel play because these companies provide the tools that make AI possible. Some companies will make the semiconductors required for AI, while others will provide the necessary data or infrastructure. Investments, on the other hand, can fall into the pure-play group. These are businesses that use artificial intelligence to create something new.
With that in mind, we asked Motley Fool contributors to recommend three artificial intelligence stocks that are currently attractive buys. Keep reading to see why C3.ai (NYSE: AI), Nvidia (NASDAQ: NVDA), and Pinterest (NYSE: PINS) made the list.
AI meets SaaS
C3.ai’s Jeremy Bowman: C3.ai is a stock that comes close to being a pure-play AI stock on the market. The company offers cloud-based tools for AI application deployment. C3.ai today operates on two highly growing markets: service-based software and artificial intelligence, and looks forward to a profitable future.
The company expects its addressable market to grow from $170 billion in 2020 to $271 billion in 2024, and revenue increased by 29% to $52.4 million in the most recent quarter.
C3.ai now has less than 100 customers, but its contracts are worth millions of dollars each year, demonstrating how quickly it can penetrate the enormous addressable market in front of it. The company intends to expand through a “lighthouse” strategy, which entails identifying leading companies in a specific area and spreading to competitors whenever a new customer in that sector is signed. Royal Dutch Shell and Baker Hughes are among the company’s current customers in the energy sector.
The C3 AI suite is C3.ai’s core offering, and Shell, for example, has used C3.ai’s software for predictive maintenance, monitoring 2,500 pieces of equipment across the organization. Shell has been able to save money on unscheduled repairs, prevent production downtime, increase safety, and extend the life of its assets as a result of this.
Because the stock has fallen back significantly since its IPO in December, down 70% from its peak shortly after it went public as optimism over a swath of growth stocks dissipated, now appears to be a good moment to start a position in C3.ai.
C3.ai, on the other hand, has a lot of long-term promise as the first mover in a fast-growing, one-of-a-kind business. C3.ai appears to have a good price, given its growth potential, with a price-to-sales ratio of 21 on the basis of the expected revenue this year of 243 million USD at 247 million USD.
There’s nothing artificial about this company’s potential
Nvidia (Eric Volkman): Nvidia is a well-known pick-and-shovel investment in the AI space, and it deserves to be. The stock just achieved all-time highs, thanks in large part to its status as the go-to AI chip supplier.
In the 1990s, Nvidia developed graphics processing units (GPUs) as a means of crunching mountains of data to produce seamless computer graphics. Machines learn by eating through masses of data in the same way that humans do, and Nvidia’s strong GPUs can chew through a lot of data, which is why they’re useful for data-hungry AI applications today.
As a result, many people associate Nvidia with high-performance graphics cards. These complex hardware parts and their supporting software power a wide range of AI applications. Among these include autonomous driving, robotics, manufacturing automation, and speech recognition, to name a few.
Accelerated computing solutions from the corporation are gradually making their way into data centers, a key client demographic. In Q2, data center revenue increased by 35% year over year to nearly $2.4 billion, a new all-time high for the company and more than one-third of total revenue for the quarter.
It helps that Nvidia has a long and impressive list of customers that rely on the company’s AI technologies to improve their businesses. Microsoft, Alphabet’s Google, Pinterest, and a long list of other well-known companies are all customers.
For many of those businesses, AI isn’t a nice-to-have that might generate some money down the line; it’s a requirement that will keep them afloat. That’s why, according to Bloomberg data from 2020, 840 American companies — the greatest number ever recorded — mentioned AI in recent earnings announcements.
In the company’s not-very-long Q2 conference call with analysts, Nvidia CEO Jensen Huang and his colleagues addressed AI approximately 50 times. That was significantly higher than the sum of both “game” and “gaming” (the company’s most important customer category for many years) plus “crypto[currency],” which is also a notable client demographic for the company’s GPUs these days.
AI is a critical component of the world’s technological future. Nvidia is destined to be a top firm in the business for years, if not decades because it is a crucial provider of AI solutions for an ever-increasing variety of applications.
A distinct social media platform
Pinterest (Trevor Jennewine): Pinterest is a unique sort of social media. Their website seeks to inspire people, rather than to bring friends and family together by connecting them with materials such as articles, images, and videos. Users can also follow their favorite products and creators on Pinterest, which range from trendy clothing shops to expert trainers.
Pinterest also collects and correlates data relating to individual tastes and preferences when individuals interact with the material. The platform relies on machine learning, a sort of AI in which software becomes more clever over time, to accomplish this. Pinterest, on the other hand, uses computer vision, a sort of artificial intelligence in which software is trained to recognize visual inputs.
These technologies work together to help Pinterest tailor the experience for each user, creating recommendations that become more relevant as more data is collected. However, Pinterest’s visual search engine is powered by both types of AI. A lens is a tool that allows users to look for visually comparable information. Let’s imagine you’re shopping for a new set of sunglasses, but you like the shirt the model is wearing when you look at a picture of those specs. Pinterest will show you where to buy the shirt if you zoom in on it (or something similar).
Artificial intelligence, in general, is at the heart of Pinterest’s competitive edge. Brands and marketers benefit from the platform’s capacity to connect individuals with personalized and exciting content. Digital advertising, unlike those on other social media platforms, mix seamlessly into the site.
As a result, compared to ads on other social media, Pinterest ads are 2.3 times more efficient (i.e., lower cost per conversion). In other words, Pinterest assists advertisers in getting more bang for their cash.
Pinterest has concentrated on making its platform more shoppable to bolster this edge. Last year, for example, the company added the ability to shop from search results, pins (visual media), and boards (visual media collections). Pinterest also made it easier for brands to post catalogs, making it easier for them to get their material on the platform. These efforts paid off in both circumstances. The number of businesses with Pinterest shopping advertisements increased sixfold in Q4 2020, while the number of users engaging with shoppable content increased 200 percent in Q1 2021.
This demonstrates how Pinterest’s business is propelled by a flywheel effect. Customers gain from broader choices as more brands promote (post content) on the site, and as more individuals join the network, Pinterest becomes a better venue for brands to reach consumers. Simultaneously, every engagement on the site improves Pinterest’s AI models, resulting in a better user experience and improved ad targeting for brands.
The bottom line is this: Pinterest has had a successful financial year in recent years. Revenue increased by 125 percent to $613 million in the most recent quarter, with a GAAP profit of $0.10 per diluted share. Slowing user growth in the aftermath of the pandemic, however, alarmed Wall Street, and the stock is now trading 41% below its all-time high. Nonetheless, I believe this is only a temporary setback. In fact, I believe Pinterest will play a key part in the development of the future commerce platform, which is why this tech stock appears to be a good buy.