Three Best AI Bets On Wall Street

Artificial Intelligence (AI) is the next big thing that promises to change the world and bring new fortunes to Wall Street.

"Generative AI is a revolution, Dave Smith, the Executive Vice President of Domestic Equities at Bailard, told the International Business Times. "We believe this has the potential to be the most impactful breakthrough in the last decade. We expect a Cambrian explosion of uses and products over the coming months and years."

Smith compares today's diffusion of AI systems to that of the early days of the internet. "Many of them will sputter, but we believe the next crop of great technology products is poised to rise from the noise,'" he added.

Still, separating great products from the noise and identifying the companies that will monetize AI and bring new fortunes to Wall Street isn't easy.

Julius de Kempenaer, senior technical analyst at StockCharts.com, likes three promising AI players: Microsoft, Nvidia, and Caterpillar.

Kempenaer places Microsoft at the top of the list as the company with the most significant investments in AI and a bullish technical chart. "MSFT put in a higher low in January 2023 after bottoming in November last year and has not looked back," he said. "The stock is testing all-time highs around $340, but we feel this uptrend may be just getting started."

Microsoft monetizes AI by adding ChatGPT to its productivity suite, including Office 365 and Microsoft 365 applications. In addition, AI will allow the technology giant to offer add-on features like intelligent virtual assistants and innovative email screening, enhancing user productivity and attracting more customers to its SAS model.

The technology giant could offer AI services to its Azure cloud platforms, such as Bot services, cognitive services, and machine learning services.

"Organizations are asking not only how – but how fast – they can apply this next generation of AI to address the biggest opportunities and challenges they face – safely and responsibly," said Satya Nadella, chairman and CEO of Microsoft, following the release of the company's fiscal year fourth-quarter financial results last week. "We remain focused on leading the new AI platform shift, helping customers use the Microsoft Cloud to get the most value out of their digital spend, and driving operating leverage."

Next on the list is Nvidia (NVDA), a leading stock in the semiconductor industry and a top Wall Street performer in 2023. "Semiconductors are the backbone of the modern technology-based economy, and as companies incorporate AI more into their business plans, it will be stocks like NVDA that benefit the most," Kempenaer added. "Nvidia recently made a new 52-week high above $400, and we feel there is much further upside potential."

Nvidia's core competences has helped the technology giant ride one tech revolution after another, providing chips for the gaming and cryptocurrency industries. Its ongoing investments in AI R&D and strategic partnerships will make it the likely winner of the AI race.

Then there's a surprise pick: Caterpillar. "It's worth remembering that pretty much all companies are considering how further investment in artificial intelligence could help them grow and scale their business," Kempenaer explained. "CAT is arguably ahead of the curve, having already invested a great deal in using AI for the autonomous operation of heavy equipment. If interest rates remain elevated, this could provide more of a headwind for growth stocks and a tailwind for industrial stocks like Caterpillar. We'd look for a confirmed break above $260 to signal further upside potential for CAT."

Adopting AI systems could help the construction equipment maker become more competitive by analyzing real-time data from its equipment, developing autonomous vehicles and robotics, and improving product design and development processes. In addition, CAT could offer new services and solutions to its construction and mining customers, like safety solutions and monitoring and control.

Still, Robert Johnson, Professor, Heider College of Business, Creighton University, thinks AI-related stocks are trading at atmospheric values due to FOMO (the fear of missing out). He cautions investors not to be caught in irrational exuberance.

"While autos had a tremendous impact on society, investors weren't duly rewarded," he told IBT.

Disclosure: The author owns shares of Microsoft and Nvidia.