In this article we will take a look at the 10 best artificial intelligence stocks for 2021. You can skip our detailed analysis of the AI industry’s outlook for 2021 and some of the major growth catalysts for AI stocks and go directly to 5 Best Artificial Intelligence Stocks for 2021.
Artificial intelligence is a buzzword increasingly being used by companies around the world that seek to project themselves at the forefront of cutting-edge research that promises to transform the lives of humans. As the word loses its meaning, it is important for investors to understand what artificial intelligence is and what companies stand to gain from breakthroughs in the new technology. Market estimates suggest that the artificial intelligence industry will witness a compound annual growth of more than 40% in the first half of this decade.
What is Artificial Intelligence?
Artificial intelligence, in the simplest words, uses data analytics to perform tasks that would otherwise be performed by humans. It is different from machine learning and deep learning in that machine learning is the ability of machines to learn without human intervention (AI requires a degree of human input) and deep learning is a type of artificial intelligence that solves complex problems mostly with the help of neural networks. All three are related but different from each other in numerous other ways as well.
Artificial intelligence is primarily being used by companies to mimic human behavior and improve existing products. The tools required for AI are delivered to these companies by chip-making and hardware firms working in the technology sector. For example, companies that develop self-driving cars, virtual assistants, and robotics are most likely to employ artificial intelligence to improve their products. AI can also be used to improve personal recommendations for users based on their internet history.
Leading researchers believe that AI is mostly used to mimic human behavior and is a far cry from the world of science fiction where AI is portrayed as a creative force. The principle use of the technology lies in complimenting human intelligence with low-level pattern recognition that would free up humans from having to do menial tasks so they can concentrate their energies elsewhere. The AI world is built on data. The widespread use of the internet has created so much data that AI companies can mine it for business products.
Technology firms with social media services are leading the AI revolution precisely because they have data banks that made it possible. These companies are also best placed to deliver on AI breakthroughs as they invest heavily in research and development. The companies that manufacture the hardware needed for AI to function in the physical world, electronics, automobiles etc, also stand to benefit as machine usage increases. Most of these companies have growth stocks, which have witnessed a slump in the past few months.
Best Artificial Intelligence Stocks to Buy
Apart from the major players like Alphabet, IBM and Amazon, the AI industry is seeing the rise of several startups that are working on some of the crucial problems affecting millions of people worldwide. Last year, AI startup founded by Tom Siebel, C3Ai Inc (NYSE: AI) raised over $600 million in its IPO. The company’s AI technology is being used by Royal Dutch Shell, AstraZeneca plc, Consolidated Edison and Baker Hughes Co. AI startups are raising billions of dollars all over the world, thanks to their innovative technologies that promise to improve the quality of life. For example, Israeli startup Beewise makes solar-powered, AI-based containers for bee colonies. The startup aims to solve the problem of diminishing bee populations, which is harmful for the entire ecosystem as bees pollinate about 70% of the world’s vegetables, fruit, seeds, and nuts.
However, analysts are still bullish on the artificial intelligence industry. But it remains vitally important for investors to do research before betting their money. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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With this context in mind, here are the top 10 best artificial intelligence stocks to buy for 2021.
10. Micron Technology (NASDAQ: MU)
Number of Hedge Fund Holders: 100
Micron Technology (NASDAQ: MU) is an Idaho-based company that produces memory and data storage products for electronic devices. It offers a wide array of products for use in computers, smartphones and other devices, including random access memory and flash drives. The company is most famous for making solid state drives (SSDs) that are used in computers for data storage. The Micro SSDs are the cheapest large capacity models in the world. The company achieves this by using a new especially designed chip in these drives. Since artificial intelligence is powered by machines, and machines require memory and data storage capabilities, Micron stock has been soaring as demand for all kinds of machines rises globally.
Micron Technology has a market cap of more than $106 billion and posted more than $21 billion in revenue in September 2021. With US President Biden pushing a plan for massive government spending to boost local manufacturing, Micron Technology is one of the firms that could gain from this new attention on American brands. The company also leads the market in DRAM Flash, a memory system used to run operating systems in cars, computers, and smartphones otherwise dependent on cloud-storage. DRAM represented more than 70% of FQ2 sales for the firm. Micro is 10th on our list of top 10 best artificial intelligence stocks to buy for 2021.
As of the end of the fourth quarter, 100 hedge funds in Insider Monkey’s database of 887 funds held stakes in Micron Technology, compared to 79 funds in the third quarter. Arrowstreet Capital is the biggest stakeholder in the company, with 17.6 million shares, worth $1.3 billion. Based on our calculations, Micron Technology ranks 21st in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.
In their Q4 2020 investor letter, Bonsai Partners highlighted a few stocks and Micron Technology Inc. (NASDAQ:MU) is one of them. Here is what Bonsai Partners said:
“Micron is a manufacturer of memory semiconductor chips. Micron’s stock appreciated 60.1% during the quarter.
Micron’s shares significantly appreciated this quarter for a couple of reasons. First, and most importantly, the DRAM market appears to have begun its cyclical rebound. As a result, we will likely see higher pricing and profitability through at least the calendar year 2021, hopefully meaningfully longer.
Another (and less meaningful) driver wasthat semiconductor stocks have become ‘en vogue’ once again. I may not be old, but I’ve been around the sector long enough to know that when generalists start getting excited about a ‘new paradigm’ around semiconductors, it’s time to be wary.
I wouldn’t call Micron overvalued, but I’d certainly say it’s more fairly priced today compared to when we first purchased it a few months ago.”
9. Amazon.com, Inc. (NASDAQ: AMZN)
Number of Hedge Fund Holders: 273
Amazon.com, Inc. (NASDAQ: AMZN) is a Seattle-based multinational technology corporation primarily in the e-commerce business. Over the past decade, the company has emerged as one of the largest technology firms in the world, making owner Jeff Bezos one of the richest men in the world. However, the firm has faced stiff competition from other American tech giants for the race to the top, and in order to beat them, has quietly reorganized itself around artificial intelligence systems that have now been incorporated into many products of the firm.
It has a market cap of over $1.65 trillion and posted more than $386 billion in revenue in December 2020. Earlier this month, WSJ reported that Amazon had increased digital advertising revenue to more than 10% of the total, closing the gap on competitors who stood at more than 20%. This week, global investment firm Evercore named Amazon as one of the top technology stocks for the first half of 2021. The company thus features ninth on our list of top 10 best artificial intelligence stocks to buy for 2021.
Masayoshi Son’s SB Management currently owns 2.3 million shares of AMZN, worth $7.4 billion. Amazon occupies 41.74% of SB Management’s overall equity. According to our calculations, Amazon tops our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.
In their Q4 2020 investor letter, Sextant Growth Fund mentioned Amazon.com, Inc. (NASDAQ: AMZN). Here is what Sextant Growth Fund has to say about Amazon.com, Inc. in their Q4 2020 investor letter:
“Technology claimed six of the 10 Largest Contributors for 2020, demonstrating the effect of the pandemic, remote work, and the acceleration of various Technology and Consumer trends. Indeed, a more expansive definition of Technology might include Consumer stock Amazon. Regardless of classification, Amazon was the leading contributor to Fund returns based not only on its dominant e-commerce position but also its leading cloud business, Amazon Web Services.”
8. Adobe Inc. (NASDAQ: ADBE)
Number of Hedge Fund Holders: 114
Adobe Inc. (NASDAQ: ADBE) is a California-based multinational computer software company. The firm is famous for producing industry-favorite applications for graphics, photography, illustration, animation, multimedia, and print. More recently, the company has turned its attention towards artificial intelligence, integrating data-based learning into most of its software through Adobe Sensei, a tool that uses artificial intelligence to improve user experiences across a wide range of Adobe products.
The firm has a market cap of more than $236 billion and posted close to $13 billion in revenue in November 2020. Earlier this week, Bank of American named Adobe stock among its top enterprise software picks. The bank maintained a Buy rating on the shares with a price target of $520. It said the company stood to gain from increased demand for digital content and a bullish market position in the sector. Adobe is eighth on our list of top 10 best artificial intelligence stocks to buy for 2021.
According to our database, the number of Adobe’s long hedge funds positions increased at the end of the fourth quarter of 2020. There were 114 hedge funds that hold a position in ADBE compared to 106 funds in the third quarter. The biggest stakeholder of the company is Fisher Asset Management, with 5.8 million shares, worth $2.9 billion. Our calculations show that, Adobe Inc. ranks 16th in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.
Polen Focus Growth mentioned in their letter that, Adobe Inc. (NASDAQ: ADBE) was one of the top contributors for the fund during the fourth quarter of 2020. Here is what Polen Focus Growth has to say about Adobe Inc. in their investor letter:
“For the full year 2020, one of the top performers was Adobe, which we have owned for many years, continues to benefit from being the gold standards of software in its respective areas, and the current environment has only served to accelerate customer demand and need for their products and services.”
7. Nvidia Corporation (NASDAQ: NVDA)
Number of Hedge Fund Holders: 88
Nvidia Corporation (NASDAQ: NVDA) is a California-based firm that develops graphics systems for video games and chipsets for smartphones and automobiles. The company also makes handheld game consoles and offers cloud gaming services as well. Some products made by the firm are also used in supercomputers. The powerful chipsets developed by Nvidia have powered nearly every major artificial intelligence breakthrough in the last few years. The chipsets can equip electronic devices to perform many different tasks at one time.
The company has a market cap of more than $350 billion and posted more than $16 billion in revenue in January 2021. New technology being developed by the company is empowering artificial intelligence breakthroughs in architecture, self-driving cars, and even the entertainment business. New television chips made by the firm now bring 4K viewing to television through gaming devices like the Nintendo Switch. The stocks of the company have been soaring and it is placed seventh on our list of top 10 best artificial intelligence stocks to buy for 2021.
GQG Partners currently holds 3.7 million shares of Nvidia that amounts $1.9 billion. NVDA occupies 6.68% of GQG Partners’ total portfolio.
Mairs & Power, in their Q4 2020 investor letter, mentioned NVIDIA Corporation (NASDAQ: NVDA). Here is what Mairs & Power has to say about NVIDIA Corporation in their Q4 2020 investor letter:
“The Fund’s biggest relative contributor in 2020 was Nvidia (NVDA). Nvidia specializes in graphics cards for computers, and it has benefited from updated chipsas well as strong market positions in applications and machine learning.”
6. Pinterest, Inc. (NYSE: PINS)
Number of Hedge Fund Holders: 95
Pinterest, Inc. (NYSE: PINS) is an American social media firm that encourages the use of images on its network for connectivity across the world. Since millions of images are used on the platform, Pinterest employs the use of artificial intelligence to sift through them and tailor the experiences of their users. For example, if someone searches for a specific term on the platform, AI-based intelligence would sift through the platform to provide the best suited results for that person. The firm has hundreds of millions of users.
It has a market cap of more than $50 billion and posted more than $1.6 billion in profits in December 2020. Global investment firm Evercore earlier this week identified PINS as one of the top technology stocks for 2021. The firm said the share prices of Pinterest had reached new highs but were still expected to touch their peak value. The investment firm added that Pinterest was one of the best social commerce plays in the market. Pinterest is placed sixth on our list of top 10 best artificial intelligence stocks to buy for 2021.
A total of 95 hedge funds tracked by Insider Monkey were bullish PINS at the end of the fourth quarter, up from 80 funds a quarter earlier. Our calculations show that, Pinterest ranks 27th in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings. RLT Capital Management, in their Q4 2020 investor letter, mentioned Pinterest, Inc. (NYSE: PINS). Here is what RLT Capital Management has to say about Pinterest, Inc. in their Q4 2020 investor letter:
“Pinterest (PINS) likes to say that “inspiration” is the foundation for everything that happens on their site, and as our top contributor in 2020, it’s fair to say we’re plenty inspired.
From its launch in March of 2010, PINS was a site wherein users (i.e., “Pinners”) were encouraged to peruse an unending catalog of images (i.e., “Pins”) related to their personal hobbies and/or interests. Perhaps more important than the discovery of “Pins” for your favorite hobby, is the ability to save/organize those “Pins” into collections (i.e., “Boards”).
Lest the notion of pinners pinning pins to their boards tempt a yawn, let’s skip to the desirable demographics of their “valuable audience” (emphases mine):
“Pinterest reaches 335 million monthly active users, two-thirds of whom are female. As of December 2019, our total audience includes 47% of internet users in the U.S. . . . this includes 8 out of 10 moms . . . as well as more than half of all U.S. millennials ages 18-34.”
Even better than those impressive demographics is the reason that sort of audience chooses to visit Pinterest in the first place:
“[Pinners] come to discover ideas for just about anything you can imagine . . . Browsing and saving visual ideas on our service helps Pinners imagine what their future could look like, which helps them go from inspiration to reality. Pinterest is the productivity tool for planning your dream. Dreaming and productivity may seem like polar opposites, but on Pinterest, inspiration enables action and dreams [to] become reality . . .”
While inspired users are one thing, inspired advertisers will be the key to realizing shareholders’ dreams. Along those lines, PINS offers a particularly compelling alignment with the intent-driven efforts of marketers (emphases mine):
“Getting inspiration for your home, your style, or your travel often means that you are actively looking for products and services to buy . . . [since “advertisers are in the business of inspiration”] . . . relevant ads don’t compete with native content on Pinterest; instead, they are content . . . Pinners use our service to get inspiration for things they want to do and buy in their real lives. This journey from ideation to action takes them down the entire purchasing process . . . [this enables advertisers to] have the opportunity to put relevant promoted content in front of Pinners at every stage of the purchasing journey . . .”
Unsurprisingly, PINS was a prime beneficiary of the unique dynamics of 2020. Monthly active users grew by 37% (to 459 million), and with a 48% year-over-year increase in sales, 2020 marked yet another year with impressive top-line growth. And yet, despite ongoing success in growing average revenues per user (a.k.a. “ARPU”), PINS’ global ARPU of $4.26 still remains downright tiny compared to the ARPUs delivered by their social media peers. Case in point: the ARPUs at Snapchat and Facebook were recently ~$9 and ~$32, respectively.
At a plump year-end valuation of ~16x estimated sales for 2021, PINS is likely going to require some growing into. That said, many of the necessary pieces are already in place, and ample green shoots are already apparent. For example:
● On the user front, PINS is still in the early stages of expanding internationally, and continues to iterate on a variety of usability and feature improvements designed to keep existing users inspired and engaged.
● On the revenue side of things, PINS continues to implement the unsexy infrastructure and backend tools that marketers need and want (e.g., analytics, automated bidding, etc.), while also integrating the early pieces of PINS’ nascent – but promising – e-commerce efforts onto the platform.
Although certainly less inspiring at year-end levels than at the portfolio’s entry point of ~$14.90, we remain optimistic that there’s significant runway ahead.”
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Disclosure: None. 10 Best Artificial Intelligence Stocks for 2021 is originally published on Insider Monkey.