Spotlight on 3 Popular AI Stocks: 2 Studs and One Dud

Stocks to buy

AI continues to be a very fast-growing field with the potential to disrupt many industries. It has created several super popular AI stocks to buy but also some to sell. In the early days of artificial intelligence, we’ve already seen signs of incredible potential overall. A lot of the early investment has gone toward data center investments by large tech companies also known as “hyperscalers.”

The incredible amount of investment has created substantial investor interest at large. That interest has spiked demand for AI stocks, sending prices ever higher in some instances. That has led some to believe that the sector is overhyped and may represent a massive bubble.

Time will tell just how utilitarian AI will become. In my mind that will be the ultimate test of AI’s longevity. For now, follow the financial fundamentals to determine which popular AI stocks are worth it.

Nvidia (NVDA)

Source: Below the Sky / Shutterstock.com

Nvidia (NASDAQ:NVDA) is certainly among the AI stocks that are worth investing in. While I can somewhat understand the trepidation surrounding AI, I cannot understand the arguments of Nvidia’s bears.

Yes, if the AI bubble suddenly bursts then Nvidia will sink like a rock. If that happens, we have much bigger problems than an artificial intelligence disappointment. The knock-on effects alone would arguably tank the stock market, taking the economy with it.

So, no one in their right mind should hope for such an outcome. However, it’s still logical to question whether such an outcome is possible. Honestly, it doesn’t appear to be the case based on Nvidia’s most recent earnings report. Demand remains extraordinarily high with record revenues and incredible margin growth at the company. All of that suggests that the hype and demand around AI is real. Otherwise, all of these companies wouldn’t continue to pump massive amounts of capital into it.

Nvidia is definitely amongst the very best AI stocks to buy and the recent stock split should spike demand further, providing yet another reason to consider investing. 

Broadcom (AVGO)

Source: Sasima / Shutterstock.com

Broadcom (NASDAQ:AVGO) stock is likely to increase in value in the coming weeks as it plans to enact a 10-for-1 stock split which will become effective July 12. Nvidia’s shares now trade for $125 following that 10-for-1 forward stock split.

It’s likely that Nvidia would have had trouble maintaining share prices at $1,250 had it not split its shares. That’s the clear impetus behind the decision at Broadcom, which boasts share prices approaching $1,500. Each firm hopes to make its shares appear more affordable though their underlying economics remain unchanged, spiking demand in the process.

That’s the general basis of the bull argument, or one of the bull arguments, benefiting Broadcom at the moment. I’d argue that investors should consider Broadcom because it’s well-positioned relative to current AI trends. The company provides in-demand semiconductors. 

Beyond that general argument, investors should consider how profitable Broadcom is overall. The company’s net margins are exceptionally high. A bearish investor would worry that those margins are unsustainable. Meanwhile, a bullish investor would instead assume that Broadcom is simply an excellent company and thus able to charge high prices.

C3.ai (AI)

Source: shutterstock.com/Below the Sky

C3.ai (NYSE:AI) was supposed to be the premier enterprise AI company and stock. Instead, it has become one of the most disappointing artificial intelligence stocks overall.

The thing that surprises me about C3.ai is that generally speaking, investors continue to give the company the benefit of the doubt. In turn, they keep investing, keeping prices relatively steady overall. In fact, AI stock has increased in value by more than 10% year-to-date.

I can’t see any rationale for continued optimism about the company after combing through its 4th quarter earnings report, released on May 29

Okay, subscription revenue and overall revenue showed some growth. However, the company continued to get deeper and deeper into the hole. What about a company that lost $280 million dollars in the most recent quarter is attractive? C3.ai produces $1 of losses for just about every dollar of revenue it reports.

How much would revenues have to grow in order for the company to be anywhere near profitability? C3.ai is, in my opinion, a lousy AI stock overall in one to generally avoid. Why not instead choose Palantir (NYSE:PLTR)? It’s a profitable option in the enterprise AI space. C3.ai is not even close in the race of AI stocks to buy and sell.

On the date of publication, Alex Sirois did not have (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.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.

Articles You May Like

Snowflake Stock Meltdown: Is the Cloud Giant’s Growth Story Over?
3 Cloud Computing Stocks to Watch as Apple Goes All-In on AI
If You Can Only Buy One Robotics Stock in July, It Better Be One of These 3 Names
3 Renewable Energy Stocks to Buy at 52-Week Lows in July
3 Retirement Stocks to Buy Now: Q3 Edition