For many investors, 2022 was the year artificial intelligence stopped being the stuff of science fiction and started being part of the very real world all around us. The emergence of generative AI tools like Microsoft -backed ChatGPT and Google ‘s Bard signal the dawn of a new era of these technologies becoming increasingly available to the public. But while these flashy products are currently dominating the headlines — for better or worse — AI is already embedded in so much of what we do. Consider: Our world is increasingly driven by greater and greater volumes of data that no human (or large team of humans) can easily manage or interpret it all. AI technology steps in to automate and analyze that information to help consumers and businesses make better decisions. For example, AI can provide a personalized shopping experience or help companies make their manufacturing processes more efficient. “There will be an explosion of companies working on new uses of AI as well as ways to improve the technology itself,” Bill Gates, co-founder of Microsoft, wrote in a recent blog post . “No matter what, the subject of AIs will dominate the public discussion for the foreseeable future.” Many of those companies will develop hardware products and software applications, along with models and algorithms to enhance AI systems. The prize will only get bigger: The global market for AI-related businesses is expected to hit $1.5 trillion by 2030, up from $119 billion in 2022, according to data from Precedence Research. Not all will succeed. Artificial intelligence is still in its early stages of development, making it difficult to gauge the innovative and useful from the merely novel. There are already many start-ups piling into the AI race in hopes of creating the next amazing application. This is why we like owning companies that have already made a name for themselves in AI, whether by building new technologies to empower its customers or by providing the infrastructure to accelerate and scale adoption of AI. Here are 8 Club stocks that are already established in AI — along with our Club take at the end. AI-powered technology companies Microsoft Microsoft arguably pushed AI into the mainstream with its unexpected release of its new AI-powered search engine Bing. Microsoft’s search engine has been around since 2009, but the new version includes an AI chatbot, supported by OpenAI’s latest language model, GPT-4. ChatGPT became the fastest-growing application when it attracted 100 million users just a couple months after its launch in November 2022. Microsoft’s partnership with OpenAI allows Microsoft to explore new AI capabilities to further advance its Bing search engine, which is aimed at stealing market share from competitor and current market leader, Google. The collaboration has allowed Microsoft to incorporate AI features into its existing tools and services to help users increase productivity. Microsoft recently announced its Azure OpenAI service , which allows developers to apply large language models to a variety of enterprise-based use cases, like writing assistance or content and code generation. Advancements like this are expected to be a part of Microsoft’s growth story in the years to come. Alphabet Alphabet is already a leader in AI development. In fact, Google exhibited early interest in the field well before many of its peers when it acquired AI start up company DeepMind, back in 2014. But Alphabet came into the AI spotlight this year when it rushed to release its new conversational AI service called Bard after Microsoft beat it to market with its AI-powered Bing. Bard’s debut was also overshadowed by inaccuracies in its promotional video. The chatbot recently became available to a wider audience in the U.S. and U.K. In CEO Sundar Pichai’s words, the “AI-first company” is using the revolutionary technology to serve its customers, by managing large amounts of data in one place for companies of all sizes, helping advertisers generate personalized ads to increase conversion results and enhancing the user experience in its suite of Google products. More AI investment is expected but will focus on “further optimizing the cost of compute” in its data centers, servers and supply chain, said CFO Ruth Porat during the company’s latest earnings call. “We’re continuing to invest with a keen lens on the return on that capital.” Pichai also said Alphabet is changing how it reports financials to separate out AI-focused investments to showcase the progress in AI. Meta Platforms Meta Platforms (META) CEO Mark Zuckerberg declared 2023 to be the year of efficiency. “One of my goals for Meta is to build on our research to become a leader in generative AI in addition to our leading work in recommendation AI,” the chief executive said during Meta’s fiscal fourth-quarter earnings webcast in early February. Generative AI is expected to create automated content to increase user engagement on the tech giant’s platforms, as well as boost monetization of its products. Zuckerberg said the company’s AI investments will create “opportunities for continued gains in the near term and medium term” by incorporating the new technology into Meta’s family of apps including Instagram, Facebook, and WhatsApp. More importantly, Meta is using AI to improve ad-targeting and deliver relevant content to users. This will likely help the company work around Apple’s privacy changes and improve financial performance in its digital advertising business. It also stands to help with the adoption and monetization of Reels. Salesforce Salesforce (CRM) is another Club name making inroads in artificial intelligence. Earlier this month, the software giant launched Einstein GPT , a generative technology that delivers AI-created content across sales, servicing, marketing, commerce and IT systems. The new service, which is the world’s first generative AI tool for customer relationship management applications, combines OpenAI’s ChatGPT technology with Salesforce’s AI models to help Salesforce customers better engage with clients and improve productivity. The company also announced a ChatGPT app for its messaging platform Slack. The app can provide summaries of conversations, deliver research tools, and assist with writing direct messages within the app. The tech firm’s global investment arm, Salesforce Ventures, rolled out a $250 million generative AI fund to support the responsible development of the technology. The fund is investing in several companies that have shown promise in improving application software through responsible AI research and represents the latest example of Salesforce’s commitment to advancement in the nascent field. Companies offering AI infrastructure Nvidia Chipmaker Nvidia (NVDA) is at the center of artificial intelligence. We view the company as the best-positioned name in the space as its technology will enable the mass adoption of AI. During its annual conference for developers earlier this month, Nvidia demonstrated the fundamental importance of its role in facilitating the usage AI applications. At the event, the tech giant unveiled the DGX Cloud — a supercomputer accessible via web browser that can be used to train models behind generative AI applications like ChatGPT. It also released cloud services that enable its customers to build personalized AI models. Nvidia develops the graphics processing units or GPUs required to accelerate data centers to the point needed for AI research and development to get to the next level in a far more energy-efficient way than is possible with the use of CPUs alone. Also unveiled were four new chips designed specifically for inferencing , which are optimized for various new generative AI applications. Moreover, the company is also ramping up AI software which will offer turnkey solutions to AI for customers. Advanced Micro Devices As a data center-oriented chipmaker, Advanced Micro Devices (AMD) is another name well-positioned to benefit from the AI boom. AMD’s accelerated processing units have long been used for personal computers and gaming machines, and the company’s data center chips can also help run AI software. Artificial intelligence applications require large amounts of compute power to operate. To facilitate these operations, AMD provides machine learning and deep learning systems which offer higher-performance computing capabilities to accelerate AI applications. As AI-powered applications like ChatGPT become more prevalent in our daily lives and are used to push forward new innovations, demand for computing power will require companies like AMD to provide solutions that help democratize AI usage. Qualcomm Qualcomm (QCOM) is focused on making AI technology on-device processing more efficient across different industries and products. For example, the company’s AI solutions are aimed at ensuring network bandwidth usage for smartphones is more efficient, allowing the mobile industry to scale AI to trillions of devices. Qualcomm’s leadership in AI processing will also enable better user experiences for other technologies like smart speakers, virtual headsets, personal computers, and intelligent cars. As AI adoption becomes more widespread across industries, and as users customize experiences on personal devices, the need to efficiently scale will drive demand for Qualcomm’s technology solutions. Palo Alto AI will also play a major role in cybersecurity, and as the leader in this space, Palo Alto Networks (PANW) is prepared to leverage AI to strengthen its security products and protect customers. The company’s AI-powered innovations can help companies improve their security by automating network operations, while reducing total cost of ownership and improving return on their investment. In a hybrid work culture, cyber-attacks and phishing scams are only becoming more prevalent. This incentivizes companies to have a security buffer in place with the latest AI innovations that protect their systems and allow for productivity without interruptions from external threats. The Club’s take Artificial intelligence presents a major market opportunity for several of our Club holdings. While almost all companies will benefit from leveraging AI to improve efficiencies, the enablers like Nvidia, AMD and Qualcomm — along with those that provide AI innovation, technology, infrastructure and research — stand to gain the most as adoption increases. Put another way, those that link their own success to the success of their customers are most attractive as AI goes increasingly mainstream. This push will inevitably lead to higher revenue and earnings growth for companies involved in AI development. At the same time, we recognize AI is still a burgeoning field and tailwinds may take time to emerge. Moreover, as this new technology takes center stage, more investment will be required as companies fight to become leaders in their respective industries. Given the need to invest, we want to concentrate on companies that are able to strike the right balance between spending on AI investments and still managing costs, especially in today’s vulnerable economic climate. After all, we saw how badly Meta Platforms was punished when management seemed willing to invest in the metaverse no matter the cost — and how much it has been rewarded for acknowledging the need to balance growth-oriented investments with profitability. (Jim Cramer’s Charitable Trust is long MSFT, GOOGL, META, NVDA, AMD, CRM, QCOM, PANW. See here for a full list of the stocks.) 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For many investors, 2022 was the year artificial intelligence stopped being the stuff of science fiction and started being part of the very real world all around us.
