Last year was booming for artificial intelligence (AI). Generative AI became mainstream, and enterprises started making investments in the space. If you are wondering whether it is too late to invest, we are still in the early stages of adoption. This article discusses some AI stocks to buy that are central to this revolution.
According to McKinsey, one-third of organizations already use AI in at least one of their business functions. Additionally, 40% plan to increase spending in this area. Already, leading companies are leveraging traditional and generative AI capabilities to drive productivity. These organizations attributed 20% of 2022 EBIT to using AI in business functions.
Generative AI has a lot of potential. According to Goldman Sachs (NYSE:GS) research, it could grow GDP by 7% annually in the next 10 years. The technology will automate tasks, streamline business workflows and enhance business applications.
Today, generative AI is applicable in business applications, drug development, software development and many more fields. The AI-fueled bull market will step up into high gear in 2024. These stocks to buy are leading the charge and are an integral part of the AI ecosystem.
International Business Machines (IBM)
Surprisingly, one of the oldest technology companies is among the stocks that will benefit from AI. International Business Machines (NYSE:IBM) has been innovating in artificial intelligence for decades. Now, it’s bound to reap the rewards of its investments.
Through Watsonx, its AI and data platform, the company provides open-source models and IBM-curated and trained foundation models. What’s more, it offers a data store for gathering, training and cleansing data and an AI governance toolkit. All these capabilities enable clients to build and deploy specialized AI features across their enterprise.
IBM has also embedded AI into its broad-based software portfolio. For instance, Watson Code Assistant delivers productivity gains for ITOps and DevOps teams. Furthermore, the company has integrated Watson technology with partners like Adobe (NASDAQ:ADBE), SAP SE (NYSE:SAP), Ernst & Young, Qualtrics and Sirion Labs.
Lastly, the consulting business is benefiting as organizations deploy more AI capabilities. IBM consultants are helping its customers deploy various generative AI solutions. IBM Consulting will be integral in scaling AI platforms and features in enterprises.
Notably, the consulting segment has had four quarters of double-digit signing growth. As a result, the book-to-bill ratio has grown to 1.16. Bank of America (NYSE:BAC) is bullish and expects IBM’s consulting business to add $1 billion in revenues from AI. Due to the growing AI revenues, it remains one of the top stocks to buy.
Microsoft (MSFT)
On January 12, Microsoft (NASDAQ:MSFT) crossed a significant milestone, surpassing Apple (NASDAQ:AAPL) as the most valuable public company. As has been evident for a few months, the company is an AI leader. While Apple has been quiet on AI, Microsoft has partnered with OpenAI and launched several products.
The Redmond-based software giant is among the best stocks to buy since it will benefit from increased enterprise spending on AI. According to Morgan Stanley (NYSE:MS), CIOs expect a 3.3% IT budget growth in 2024. Of course, generative AI will be a key priority area due to huge productivity gains.
Microsoft will capture a significant share of this spending in various ways. First, Microsoft Azure has the best AI infrastructure for training and inference. Its services are available in over 60 data center regions worldwide. No other cloud provider covers more areas.
Azure AI offers the best AI models from OpenAI and open-source models from Meta Platforms (NASDAQ:META), Hugging Face and others. Today, customers are using these models to develop their own AI applications. Due to the breadth of services and wide geographic reach, over 18,000 customers use Azure OpenAI services.
Another key area of Microsoft’s AI services has been improving productivity through copilots. The first service, GitHub Copilot, has become popular among developers since it increases productivity by over 55%. Microsoft 365 copilot is also seeing widespread adoption and could generate annual revenues of $10 billion by 2026.
The opportunities mentioned above elevate Microsoft as one of the best AI stocks to buy. As generative AI adoption grows, Microsoft will expand its AI customer base. Lastly, TipRanks analysts are bullish, with an average price target of $429, a possible 10% increase.
Arista Networks (ANET)
As cloud service providers increase data center spending in 2024 to meet AI/ML workloads needs, Arista Networks (NYSE:ANET) will benefit. The networking company is a key supplier to all major cloud service providers. Microsoft and Meta Platforms are large customers, accounting for about 42% of revenues in fiscal year 2022.
Typically, AI workloads are compute and data-intensive, requiring computations distributed across thousands of GPUs. Therefore, the interconnect must deliver reliable performance, speed, scalability and interoperability. That is where Arista’s IP/Ethernet switches for GPU and Storage interconnects come into play.
The company provides the best ethernet solutions for AI networks. Its data center switches offer the best performance and low latency. Besides, Arista’s Universal Leaf and Spine design supports the interconnection of thousands of GPUs in large-scale AI applications.
Today, Arista Networks is one of the top networking stocks to buy since its products are critical in building AI data centers. Its 7800R3 AI spine and 7060 AI leaf products are integral in optimizing networks and maximizing modern AI applications. Besides, Arista EOS, its Linux-based network operation system, provides the tools to achieve a high-bandwidth, low-latency, scalable, lossless and multi-tenant network.
Analysts are optimistic about the company since its products are essential in building data centers to handle AI workloads. Their consensus estimates predict 33% revenue growth for 2023 and the momentum to continue in 2024. As major cloud service providers invest in more data centers to enhance their AI services, it’s one of the stocks that will get an AI boost.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.