From Morningstar: 2024-11-19 08:40:13

Artificial intelligence technology is still in its early stages, with investors looking for promising companies in the field. AI stocks outperformed the market in the first half of 2024, with the Morningstar Global Next Generation Artificial Intelligence Index returning 35.55% year-to-date. Companies like Microsoft, Alphabet, and Adobe are among the top AI stocks to consider, with Morningstar Ratings of 4 or 5 stars.

Microsoft, a leader in AI with its Azure platform, offers a wide range of PaaS/IaaS solutions and AI services like OpenAI. The company’s revenue growth estimates have been revised upward, and its stock is undervalued compared to its fair value estimate of $490. With strong ties to customers and a focus on cloud solutions, Microsoft is positioned for continued growth in AI.

Alphabet, the parent company of Google, is another top AI stock with a wide economic moat. Google’s investments in AI, particularly generative AI like Gemini, enhance its search quality and advertising capabilities. Despite antitrust concerns, Alphabet remains a technology behemoth with a strong presence in search, AI, video, and cloud computing.

Taiwan Semiconductor Manufacturing, the world’s largest dedicated chip foundry, is a key player in the semiconductor industry. With a wide moat and a focus on high-performance computing, Taiwan Semiconductor is well-positioned to benefit from the growth of AI, IoT, and HPC applications. The stock is trading below its fair value estimate of $215, presenting a potential buying opportunity.

Adobe, known for its creative software products like Photoshop and Illustrator, is a leader in content creation software. The company’s AI solutions, like Firefly, offer new opportunities for growth and customer acquisition. With a wide economic moat and plans for continued expansion in digital experience and cloud computing, Adobe is a promising AI stock to consider.

Snowflake, a major player in data lake, warehousing, and sharing, offers a unique platform for AI and big analytics insights. Its multicloud platform strategy and focus on automation tools position Snowflake for continued growth. The stock is currently undervalued compared to its fair value estimate of $187, making it an attractive investment in the AI space.

Cognizant Technology Solutions, a global IT services provider, is benefiting from the demand for digital transformation projects and AI services. With a narrow economic moat and undervalued stock, Cognizant is well-positioned to leverage its technical capabilities and consulting services in the AI domain. As companies look for AI experts, IT servicers like Cognizant will play a crucial role in enabling enterprise AI integration and adoption.

Baidu, the largest search engine in China, is pursuing growth in AI, video streaming, voice recognition, and autonomous driving. Despite competition in the online advertising space, Baidu’s focus on generative AI and cloud services presents growth opportunities. With a wide economic moat and undervalued stock, Baidu is a compelling AI stock to consider for long-term investment.

Dassault Systemes, a leader in computer-assisted design software, offers products for industries like aerospace, autos, and manufacturing. With a wide economic moat and a focus on emerging trends like electric vehicle design, Dassault is poised for continued success. The stock is trading below its fair value estimate of $40, making it an attractive option for investors interested in AI stocks.

Okta, a key player in identity and access management, benefits from high customer switching costs and a network effect. While the company has not carved out an economic moat yet due to heavy spending on sales and marketing, Okta’s platform and range of SKUs position it for growth. With an undervalued stock and potential for international expansion, Okta is a promising AI stock to watch.

UiPath, a narrow-moat company specializing in automation software, offers solutions for various industries and processes. With a leading market share in RPA technology and a focus on end-to-end process automation, UiPath is well-positioned for growth. The undervalued stock presents an opportunity for investors interested in AI stocks with potential for long-term success.

Investors looking for more AI stocks can explore the Morningstar Global Next Generation Artificial Intelligence Index, which provides exposure to innovative AI technologies across different sectors. By reviewing the index’s holdings, staying informed about the tech sector’s performance, and using tools like the Morningstar Investor screener, investors can identify additional AI stocks to consider for their portfolios.



Read more at Morningstar: 10 AI Stocks to Invest In