Artificial intelligence (AI) has taken the world by storm. Companies left and right use AI to sell products for practically everything in the market. (I’ve read about AI being exclusively used to craft beer and write fanfiction… What a time to be alive.) Though, if you’re looking for AI stocks to buy, it might be better to shop around at the top. And when I say top, I mean the very top.
Large, established companies in the AI space have a better chance of pushing boundaries. They have the funds to support their research, the expertise to maximize practical applications and the network and manpower to scale their production.
So, let’s discuss three AI stocks that could lead us to better and more practical applications for AI and, hence, reward their shareholders.
To get the list, I used the following screen:
- Mega-cap stocks (market cap of at least 200 billion)
- Buy ratings from analysts
Then, I sorted each stock based on how much they spent on R&D, from highest to lowest.
Qualcomm (QCOM)
The leader in the mobile chipset market, Qualcomm (NASDAQ:QCOM) develops and commercializes wireless technologies, including 3rd to 5th-generation wireless connectivity, on-device artificial intelligence and low-power and high-performance computing.
Currently valued at $234 billion, Qualcomm is famous for its Snapdragon chipset and fast charging technology. The company has continued to delve into the AI race with its new Snapdragon X Plus platform, which promises unprecedented performance with onboarded AI capabilities. PCs with Snapdragon X Plus and Snapdragon Elite installed are expected to launch in mid-2024.
Qualcomm reported a strong Q2’24, where diluted EPS exceeded guidance and reached $2.06 — up 36% year-over-year (YOY). The company also achieved its third consecutive quarter of record QCT Automotive revenues, which grew 35% YOY.
Qualcomm continued to grow in diverse areas, including advancements in on-device AI. In FY’23, the company spent 29% of its revenue on R&D, and its current momentum suggests that it was money well spent.
Analysts rate QCOM stock as a Strong Buy recommendation, making it one of the best AI stocks to add to your portfolio.
Advanced Micro Devices (AMD)
Better known by the acronym AMD, Advanced Micro Devices (NASDAQ:AMD) is a semiconductor company that is popularly known for its GPUs and CPUs. The company has a $259 billion market cap and operates in the following segments:
- Data Center: handles server-based GPUs, CPUs, DPUs and FPGAs
- Embedded: handles APUs, GPUs, CPUs, FPGAs, system on modules (SOMs) and adaptive SoC products
- Gaming: responsible for its discrete GPI’s custom SOC products and services
While Nvidia (NASDAQ:NVDA) may be considered the biggest player in the AI market, AMD has proven it has what it takes to catch up to the other major players. The company is currently working on increasing its footprint in the AI space. Furthermore, Optiver, a global market maker, chose AMD to facilitate its AI-centered data center overhaul.
AMD’s Q1’24 saw an impressive 80% rise in data center revenue and 85% in client segment revenue. The growth was driven by the Instinct GPU and EPYC CPU lines, which are optimized for AI and server workloads.
Last year, AMD spent ~26% of its revenue on research and development. The company intends to invest more in AI as demand grows. This willingness has propelled the company beyond being known as the “cheap” alternative to Nvidia and Intel (NASDAQ:INTC) products. As such, analysts rate AMD stock as a Strong Buy, making it one of the more attractive AI stocks in the market.
Adobe (ADBE)
Popularly known for its Photoshop and Acrobat PDF reader, Adobe (NASDAQ:ADBE) is a technology company offering solutions to create, optimize and deliver digital experiences in the following segments:
- Digital Experience: offers Adobe Experience Cloud, including various products and services
- Digital Media: includes Adobe Express, Firefly, Photoshop and more
The company developed Adobe Firefly, a generative AI tool for modifying fonts, images and illustrations. Adobe is a strong proponent of the ethical use of AI, such as in works of art, where AI can potentially infringe copyrights of various images.
Adobe started 2024 with a strong Q1. Revenue came in 11% higher YOY. The Digital Experience segment also grew 10%. Additionally, subscription revenue increased from $4.37 billion to $4.91 billion.
In terms of R&D, Adobe spent nearly 18% of its FY’23 revenue on that line item. The company’s venture into AI has enhanced its offerings and helped its users increase productivity, which, in turn, earned it more revenue.
ADBE stock, with a market cap of $206 billion, is rated as a Strong Buy. So, if you’re looking for AI stocks to buy, then ADBE might be for you.
On the date of publication, Rick Orford held long positions in ADBE. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.