Conversation about artificial intelligence and machine learning has been going on for years. While many companies have been making enormous strides in these technologies, it’s just now coming to fruition for the public. Of course, that has them looking up the best AI stocks to buy.
Talk of AI and ML didn’t just start this year, but it has risen substantially over the last few months. That’s after ChatGPT exploded onto the scene. With its easy interface and accurate, timely responses, it quickly racked up millions of users.
Then Microsoft (NASDAQ:MSFT) made a massive investment in ChatGPT’s parent company, OpenAI. That really spoke to the seriousness of this budding business and the role it will play in the future.
That’s what started this frenzy with investors looking for AI stocks to buy.
| MSFT | Microsoft | $287.15 |
| NVDA | Nvidia | $275.76 |
| BIDU | Baidu | $148.83 |
Microsoft (MSFT)
Microsoft is atop our list of AI stocks to buy because of the role it has played in the AI-narrative this year.
Its investment in ChatGPT didn’t have an immediate impact on its stock price and the increased volatility held its stock price hostage.
However, the banking crisis helped give it a boost.
Here’s the reality. I don’t think Microsoft, Apple (NASDAQ:AAPL) and other mega-cap tech names are completely immune. But when banking worries arose, there was some serious concern about various assets and markets. But one thing there wasn’t a concern over? Microsoft’s balance sheet and cash flow.
Combined with the AI catalyst, shares have exploded to multi-month highs. It would be reasonable for the stock to consolidate and/or pull back, but for the long term, Microsoft is hard to beat.
Analysts expect modest sales and revenue growth this year, but investors are really optimistic about the future. That’s as Microsoft incorporates ChatGPT into its search, browser and enterprise platforms.
Nvidia (NVDA)
What a superstar Nvidia (NASDAQ:NVDA) has been. The stock is up 91% in 2023 and is up more than 150% from the 2022 low. It helps that tech stocks have been strong and semiconductor stocks have been robust.
Nvidia is a superb company in its own right but its exposure to AI is really helping it lead these two groups higher.
There is a question of sustainability in the current rally, though. Shares are up in 12 of the last 13 weeks and the valuation is getting quite stretched after the current run. After all, AI may be a strong segment for Nvidia in the future, but it’s not that powerful right now.
I am one of the biggest proponents of Nvidia for long-term growth. However, shares hardly look cheap at 62 times this year’s earnings estimates.
That said, it’s a buy-the-dip kind of name.
Baidu (BIDU)
Everyone seems to forget about Baidu (NASDAQ:BIDU) — AKA the “Google of China.” Could it be the next stock to take off?
Like Google, Baidu focuses on internet search. Like Nvidia (and like Google too), it’s also focused on self-driving cars. Either way, Baidu should be a big winner from the advancements in AI.
While Chinese stocks had been out of favor, that should not be the case forever. Particularly as Baidu continues to improve from a fundamental perspective.
Analysts expect roughly 10% revenue growth this year and next year, along with 14% to 15% earnings growth in 2023 and 2024, respectively. While not explosive growth, it is solid. Particularly at the current valuation.
Shares trade at about 15 times earnings, making Baidu very approachable for those willing to buy Chinese equities. The company also has a strong balance sheet, with roughly $56.8 billion in total assets and just $22.2 billion in total liabilities.
Its current asset to current liabilities ratio is even better at 2.67 (vs. 2.55 for total assets vs. total liabilities).
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.