Artificial intelligence has been the story of 2023. Some will call AI a bubble, and there’s no doubt that some AI stocks are more than a little frothy. But this is a multi-year trend that is still in its early stages. That’s why, even if you haven’t bought into the sector, it’s important to have a list of AI stocks to watch.
There are different ways to invest in artificial intelligence. You can play it (relatively) safe by owning one of the large-cap “big tech” stocks. That won’t take away all the volatility, but you’ll be investing in companies that aren’t going away. You can also invest in companies that provide the infrastructure that companies will need to provide AI products and services for their customers.
Yet another option is to invest in one of the up-and-coming AI stocks. As the label suggests, these stocks aren’t on the level of the big tech stocks, but they have a strong story to back them up. Many of these companies focus on a specific niche that analysts forecast will have significant upside.
Investors can also choose to invest in one of several exchange-traded funds (ETFs) that focus on AI. This article focuses on AI stocks within these categories.
Palantir (NYSE:PLTR) is a stock that mirrors the hype in the AI sector. In August 2023, Wedbush analyst Dan Ives said Palantir is the “Messi of AI,” referencing the international soccer star Lionel Messi. Ives also set a price target of $25 for PLTR stock.
At the time, that was “only” a 25% increase from the company’s stock price. Today, it marks a gain of almost 80%. That should make investors wonder why the stock dropped.
Many investors who were long in PLTR stock used the summer surge as an opportunity to take some profits or exit their position entirely. To be fair, there are some concerns about the company’s current valuation. Revenue continues to grow, but analysts are concerned that it may not be growing fast enough to justify a forward price-to-earnings (P/E) ratio of over 216x.
Perhaps a more valid concern centers around the company’s ability to monetize AI. Palantir’s chief executive officer (CEO) Alec Karp didn’t do the company any favors by acknowledging that the company’s AI strategy (re: monetization) is not fully in place.
That being said, Palantir has posted three consecutive profitable quarters, which many analysts doubted. The company has had a history of overcoming investor objections. While there may be some short-term turbulence, the long-term case for owning PLTR stock is still strong.
Nvidia (NASDAQ:NVDA) will continue to be one of the foundational stocks for investors looking for exposure to AI. However, if you are looking for other AI stocks to buy as a picks-and-shovel opportunity, Qualcomm (NASDAQ:QCOM) deserves a closer look.
The primary reason is that Qualcomm recently signed a new chip supply arrangement with Apple (NASDAQ:AAPL). The deal stipulates that Qualcomm will provide its Snapdragon 5G Modem-RF systems for Apple iPhones between 2024 and 2026. Apple is looking to design its own modem. It still may do that in time. But for now, Qualcomm is the beneficiary, a fact that investors can use to their advantage.
QCOM stock popped about 4% on the news but is still down over the last 12 months and is posting just a slight 1% gain in 2023. That allows investors to focus on its attractive valuation of just 17x forward earnings.
And the company’s dividend shouldn’t be overlooked. Qualcomm has increased its dividend by an average of 5.7% for the past three years. Furthermore, the company has increased its dividend for 21 consecutive years and has a $3.20 annual payout per share.
Artificial Intelligence & Technology ETF (AIQ)
For many investors, AI is an ideal reason to invest in an exchange-traded fund (ETF). These funds can give investors a broad base of exposure while smoothing out the volatility of owning individual stocks. And the Artificial Intelligence & Technology ETF (NASDAQ:AIQ) is an appealing choice among AI stocks to watch.
The fund’s approach is to find the most innovative companies in the AI sector regardless of the company’s sector or country of origin. The expense ratio of 0.68% is on the high side, but it’s appropriate with the potential growth of this sector. Case in point: AIQ stock is up 36% in the last 12 months.
Not surprisingly, Nvidia is one of the fund’s top holdings. Looking at the stocks in this article, the AIQ fund counts Qualcomm as one of its holdings. As of this writing, Palantir was not held by the fund.
On the date of publication, Chris Markoch had a LONG position in PLTR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.