Best AI Stocks to Look Out For in 2024

In today's market, investing in artificial intelligence (AI) stocks presents an interesting opportunity for growth. This guide navigates the landscape of AI investment, highlighting top stock picks and ETF options that offer exposure to this transformative sector.

From established giants like Microsoft and Amazon to innovative disruptors such as Meta and NVIDIA, these companies leverage AI technologies to drive innovation and enhance efficiency. Whether you're a seasoned investor or new to AI stocks, this guide offers valuable insights to inform your investment decisions.

Top Stock Picks: Must-Watch Investment Opportunities

1. Microsoft Corp (NASDAQ:MSFT)

With 302 hedge fund holders, Microsoft Corp (NASDAQ:MSFT) has demonstrated robust investor confidence. As of March 7, 2024, its year-to-date performance stands impressively at +9.5%.

Renowned as a software and AI frontrunner, Microsoft Corp (NASDAQ:MSFT) boasts a diverse portfolio including Office, Microsoft 365 Copilot, and Microsoft Viva. The company has allocated substantial resources to AI, having initially invested $13 billion in OpenAI and announcing plans for an additional $2.1 billion investment. Notably, Microsoft’s strategic focus on AI contributed significantly to its remarkable 64%+ surge in 2023.

2. Amazon.com Inc (NASDAQ:AMZN)

Amazon.com Inc (NASDAQ:AMZN) has garnered attention from 293 hedge fund holders, reflecting strong investor interest. As of March 7, 2024, its year-to-date performance stands at an impressive +19.3%.

Distinguished as a consumer and tech giant, Amazon.com Inc (NASDAQ:AMZN) operates a multifaceted business model encompassing product sales, advertising, and subscription services. Additionally, it provides AI solutions through Amazon Web Services, leveraging these technologies to enhance its e-commerce platform, cloud services, and logistics operations.

3. Meta Platforms Inc (NASDAQ:META)

Meta Platforms Inc (NASDAQ:META) has 242 hedge fund holders and as of March 7, 2024, its year-to-date performance has surged impressively by +41.4%.

Operating as a leader in social media and entertainment, Meta Platforms Inc (NASDAQ:META) integrates AI technologies across its platforms. This strategic utilization of AI empowers the company to enhance advertising effectiveness, ultimately driving revenue and profitability.

4. NVIDIA Corp (NASDAQ:NVDA)

Renowned as the top performer in the S&P 500 last year, NVIDIA Corp (NASDAQ:NVDA) experienced a remarkable rally, surging by over 251% amidst the AI fervor. As of March 7, 2024, its year-to-date performance stands impressively at +78.4%.

With its strong momentum over the past year, the company remains a top choice among Wall Street's AI stock selections.

5. Alphabet Inc (NASDAQ:GOOG)

Utilizing AI to reinforce its search engine dominance, Alphabet Inc (NASDAQ:GOOG) stands as a major player in the AI sector. Offering a diverse range of internet services including search, advertising, maps, photos, and videos, the company remains a pivotal force in the digital landscape. Additionally, Alphabet Inc (NASDAQ:GOOG) boasts a robust presence in cloud computing services which can utilize AI tech to increase effectiveness and efficiency of service. 

The World of ‘AI Stocks’: Decoding Their Significance and Meaning

Investing in AI stocks has become increasingly popular as artificial intelligence continues to revolutionize various industries. Understanding what qualifies a stock as an AI stock involves examining several key factors:

Core Business Focus: AI stocks typically belong to companies that have AI as a core aspect of their business model. These companies often develop AI technologies, integrate AI into their products or services, or leverage AI to enhance their operations. For example, companies like NVIDIA, which produces GPUs optimized for AI workloads, or Alphabet, which uses AI algorithms to improve its search engine and other services, are considered AI stocks due to their strong emphasis on AI technology.

AI Products or Services: Companies offering AI products or services are often classified as AI stocks. These products or services could range from AI-driven software platforms to hardware components optimized for AI workloads. Companies providing AI-driven solutions in areas such as healthcare, cybersecurity, autonomous vehicles, or fintech are often viewed as AI stocks.

Investment in AI Research and Development: AI stocks typically allocate significant resources to research and development (R&D) in the field of artificial intelligence. This investment is crucial for developing innovative AI technologies and maintaining a competitive edge in the market. Companies that heavily invest in AI R&D and consistently introduce new AI-driven products or services are often considered AI stocks.

Revenue Generation from AI: Another factor that defines an AI stock is the proportion of revenue derived from AI-related activities. Companies generating a substantial portion of their revenue from AI products, services, or technologies are often categorized as AI stocks. This could include revenue from AI software licenses, AI consulting services, or sales of AI-enabled hardware.

Market Perception and Industry Recognition: The market's perception of a company's involvement in AI and its recognition within the AI industry also play a significant role. Companies that are widely regarded as leaders or innovators in the field of AI tend to attract investor interest and are often classified as AI stocks.

Partnerships and Collaborations: Partnerships and collaborations with other AI-focused companies, research institutions, or government agencies can also signal a company's commitment to AI and its potential as an AI stock. Collaborative efforts often lead to the development of cutting-edge AI technologies and solutions, driving growth and competitiveness in the market.

In summary, a stock is considered an AI stock when the company demonstrates a strong emphasis on AI technology, either through its core business focus, products or services, investment in R&D, revenue generation, market perception, or strategic partnerships. 

What to Consider When Investing in AI Stocks

Successfully investing in AI stocks requires careful consideration of various factors to maximize potential returns while managing risks. Here are some steps to help you navigate the process:

1. Educate Yourself About AI: Before investing in AI stocks, it's crucial to understand the fundamentals of artificial intelligence, including its applications, trends, and potential impact on industries. Stay informed about advancements in AI technology, market dynamics, and regulatory developments that may affect AI-related companies.
2. Research Potential Investments: Conduct thorough research to identify promising AI stocks. Look for companies with strong fundamentals, like the ones we listed here, innovative AI technologies or solutions, competitive advantages, and growth potential. Evaluate factors such as revenue growth, profitability, market share, leadership position, and investment in R&D.
3. Diversify Your Portfolio: Diversification is key to managing risk in any investment portfolio. Consider investing in a diversified mix of AI stocks across different sectors and industries to spread risk and capture opportunities. Avoid overconcentration in a single stock or sector, as this can increase portfolio volatility. Your overall portfolio should also include stable investments outside of the AI sector given that the new technology is vulnerable to disruption and volatile shifts in public opinion, regulation and practical application.
4. Assess Company Fundamentals: Analyze the financial health and performance of potential AI stocks. Evaluate factors such as revenue growth, earnings growth, profit margins, debt levels, cash flow, and return on equity. Pay attention to valuation metrics such as price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, and price-to-book (P/B) ratio to determine whether a stock is undervalued or overvalued.
5. Evaluate Competitive Positioning: Assess the competitive landscape and positioning of AI companies within their respective industries. Look for companies with sustainable competitive advantages, strong moats, and differentiated AI technologies or offerings that can drive long-term growth and profitability.
6. Monitor Industry Trends and Developments: Stay informed of industry trends, technological advancements, regulatory changes, and competitive developments that may impact AI stocks. Monitor news, industry reports, earnings announcements, and analyst insights to make informed investment decisions and adjust your portfolio as needed.
7. Consider Long-Term Growth Potential: While short-term market fluctuations are inevitable, focus on the long-term growth potential of AI stocks. Invest in companies with solid growth prospects, scalable business models, and the ability to capitalize on emerging opportunities in the AI market..
8. Manage Risk: Implement risk management strategies to protect your investments and mitigate downside risk. Set clear investment objectives, establish stop-loss levels, and diversify your portfolio across asset classes and investment strategies. Consider using tools such as options, futures, or hedging strategies to manage risk and volatility.
9. Stay Disciplined and Patient: Investing in AI stocks requires discipline, patience, and a long-term perspective. Avoid succumbing to market hype or short-term volatility, and stick to your investment strategy and thesis. Continuously monitor your investments, reassess your portfolio periodically, and make adjustments as necessary to stay on track toward your financial goals.
10. Seek Professional Advice if Needed: If you're uncertain about investing in AI stocks or navigating the complexities of the market, consider seeking advice from a financial advisor or investment professional. A qualified advisor can provide personalized guidance, help you assess your risk tolerance, and tailor an investment strategy that aligns with your goals and objectives.

Navigating the AI Landscape: Exploring ETF Opportunities

If you're seeking exposure to AI companies for your portfolio but prefer not to select individual AI stocks, consider investing in an AI-focused exchange-traded fund (ETF). AI ETFs offer exposure to a diverse array of top AI companies, sparing you the need to conduct research and pick individual stocks independently.

1. Global X Robotics & Artificial Intelligence ETF
The Global X Robotics & Artificial Intelligence ETF, established in 2016, aims to invest in companies poised to benefit from the growing adoption of robotics and artificial intelligence. This includes businesses involved in industrial robotics, automation, non-industrial robots, and autonomous vehicles.

With a portfolio comprising 44 stocks, the ETF's top five holdings represent approximately 47% of its assets:

• Nvidia (NVDA)
• Intuitive Surgical (ISRG)
• ABB (OTCPK:ABBN.Y)
• Keyence (KYCCF)
• Fanuc (FANUY)

2. ROBO Global Robotics and Automation Index ETF
The ROBO Global Robotics and Automation Index ETF (ROBO 0.94%) focuses on companies at the forefront of "transformative innovations in robotics, automation, and artificial intelligence." This ETF invests in firms primarily engaged in AI, cloud computing, and other technology-related industries.

With a portfolio comprising 77 different stocks, ROBO ensures diversification by avoiding over-reliance on any single holding, with no individual stock accounting for more than 2.2% of the ETF's value. The top five holdings collectively represent only about 9% of the fund's total value. These holdings include Intuitive Surgical, renowned for its da Vinci surgical robot, alongside four other prominent companies:

• Azenta (AZTA)
• Illumina (ILMN)
• Rockwell Automation (NASDAQ:ROK)
• Teradyne (TER)

3. iShares Robotics and Artificial Intelligence ETF
The iShares Robotics and Artificial Intelligence ETF (IRBO 1.24%) seeks to mirror the performance of an index comprising developed and emerging market companies poised to benefit from the long-term opportunities in robotics and AI.

Established in 2018, IRBO manages assets of less than $1 billion, demonstrating its relatively recent inception and potential for growth. With a diverse portfolio of 118 stock holdings, the ETF offers investors a well-rounded exposure to the sector. Notably, many of its top holdings provide exposure to rapidly growing small-cap companies.

The fund's top five investments, collectively representing about 5% of IRBO's assets, include:

• Snap (SNAP)
• Advanced Micro Devices (AMD)
• DigitalOcean Holdings (NASDAQ:DOCN)
• Ansys (ANSS)
• Lumen Technologies (NASDAQ:LUMN)

4. First Trust Nasdaq Artificial Intelligence & Robotics ETF
The First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT 0.95%) aims to replicate the performance of the Nasdaq CTA Artificial and Robotics index, comprising companies involved in AI and robotics across technology, industrials, and other sectors.

Launched in 2018, the ETF experienced notable growth during the pandemic, driven in part by its heavy exposure to technology stocks, which constitute over 60% of its holdings. With a portfolio consisting of 108 stocks, the ETF's top five holdings include Illumina, along with:

• Upstart Holdings (UPST)
• Luminar Technologies (LAZR)
• Ocado Group (OTC:OCDDY)
• SentinelOne (NASDAQ:S)

AI Investing: Smart Move or Passing Trend?

Investing in AI stocks can indeed be a strategic move, especially for investors with an already diversified portfolio. While diversification remains fundamental to managing risk in investments, allocating a portion of one's portfolio to AI stocks can offer exposure to a transformative and rapidly growing industry.

Artificial intelligence has become ubiquitous across various sectors, including healthcare, finance, retail, transportation, and more. Companies leveraging AI technologies are poised to disrupt traditional business models, drive innovation, and gain a competitive edge in the market. From predictive analytics and machine learning algorithms to natural language processing and computer vision, AI is reshaping how businesses operate, make decisions, and interact with customers.

Moreover, the popularity and widespread adoption of AI are fueled by its potential to generate significant value and efficiency. Businesses are increasingly recognizing the strategic importance of AI in enhancing productivity, reducing costs, and unlocking new revenue streams. As AI technologies continue to advance and mature, they are expected to permeate even more aspects of our daily lives and contribute to economic growth and societal development.

However, it's essential to acknowledge the inherent risks associated with investing in AI stocks. Similar to the dot-com bubble of the late 1990s, the AI industry may experience periods of hype, speculation, and volatility. Not all AI companies will succeed, and investor sentiment towards AI stocks can fluctuate based on market dynamics, technological breakthroughs, regulatory changes, and competitive pressures.

Therefore, while the long-term prospects for AI are promising, investors should exercise caution and conduct thorough due diligence before investing in AI stocks. Focus on companies with solid fundamentals, innovative AI technologies, strong management teams, and a clear path to sustainable growth. Additionally, consider the competitive landscape, market dynamics, and potential risks when evaluating AI investments.

In conclusion, investing in AI stocks can be a prudent decision for investors seeking exposure to a transformative and high-growth industry. By carefully assessing opportunities and managing risks, investors can position themselves to capitalize on the long-term potential of AI while navigating the uncertainties and challenges inherent in the evolving AI landscape.