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All Contents © 2019The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| June 22, 2018
The artificial-intelligence revolution is coming, whether you’re ready or not. AI supporters believe that it has the potential to transform the world as we know it; Google CEO Sundar Pichai describes AI as “more profound than … electricity or fire.” Indeed, PricewaterhouseCoopers estimates that artificial intelligence could become a massive $70 billion market by 2020.
So which stocks are pushing the boundaries of technology and capitalizing on this booming industry?
Here we used TipRanks’ big-data analytics to pinpoint five AI stocks with big support from the Street. These stocks aren’t all necessarily creating AI technology – some are simply using it in a way that sets them far apart from their peers. But all these stocks do boast a “Strong Buy” analyst consensus based only on the last three months of ratings.
Let’s take a closer look at how these stocks are using AI now, and what this means for their future fortunes:
Data is as of June 21, 2018. Stocks are listed in alphabetical order.
Market value: $812.0 billion
TipRanks consensus price target: $1,260.91 (8% upside potential)
TipRanks consensus rating: Strong Buy
No list of artificial intelligence stocks is quite right without Alphabet (GOOGL, $1,169.44). Its Google division constantly pushes AI to new and exciting places.
For example, a recent Bloomberg report has revealed that Google’s Medical Brain unit is using AI to train machines to predict when patients will die. The Google tool uses self-learning neural networks to predict key outcomes including readmission and the length of hospital stay. This powerful data analysis can even be used to predict symptoms and disease, apparently with incredible accuracy.
Google’s AI system is unique because of its ability to analyze even unorganized data. “In general, prior work has focused on a subset of features available in the EHR (electronic health record), rather than on all data available in an EHR, which includes clinical free-text notes, as well as large amounts of structured and semi-structured data,” Google’s report says.
Analysts currently have 23 buy-equivalent ratings versus just three holds. The bull camp includes Monness Crespi’s Brian White (view White’s TipRanks profile), who writes, “With sales up 19% per annum over the past four years, EPS turning in a 17% CAGR and a dominant position in search with a leadership in digital advertising, we believe Alphabet should trade at a healthy premium to the market and tech sector.”
Market value: $139.1 million
TipRanks consensus price target: $20.40 (125% upside potential)
While most of AI attention focuses on tech stocks, AI also has the potential to drive huge change in the world of healthcare and drug development.
“As technology continues to advance and evolve, we have a unique opportunity to ensure that augmented intelligence is used to benefit patients, physicians, and the broad health care community,” reads the American Medical Association’s first-ever AI policy.
One top-rated biotech stock making the most of these new opportunities is BioXcel Therapeutics (BTAI, $9.08). BioXcel uses artificial intelligence to pinpoint prospective neuroscience and immuno-oncology drugs. Through AI, BioXcel can source promising failed or discontinued drug candidates. It can then apply these drugs to the treatment of different diseases or make small modifications to things such as the dosing pattern.
“Through this approach, which eschews de novo compound discovery, BioXcel endeavors to attain capital-efficient, cost-effective delivery of approved agents for areas of significant unmet need at a fraction ($50 - 100M) of the cost (over $2B) typically associated with the development of novel drugs,” writes H.C. Wainwright’s Raghuram Selvaraju (view Selvaraju’s TipRanks profile). Indeed, the company already has two very promising late-stage pipeline candidates: BX501 (for prostate and pancreatic cancer) and BX701 (for dementia, schizophrenia and bipolar).
BTAI has received five back-to-back buy ratings from analysts in the past three months.
Market value: $46.5 billion
TipRanks consensus price target: $188.75 (33% upside potential)
From healthcare to agriculture, Deere (DE, $142.01) is another unexpected name using artificial intelligence in creative new ways. According to a report by KeyBanc, technology acquired by John Deere could reduce chemical spraying volumes by up to 90%. That’s a massive saving, both in terms of money and in terms of the environment.
So how did John Deere move into the world of big data?
For this initiative, DE snapped up computer-vision startup Blue River Technology for $305 million in September 2017. Blue River developed a smart robot capable of assessing whether a plant is a weed or a plant, then delivering the pesticide accordingly. So instead of assessing weeds vs crops on a field by field basis, farmers can now work plant by plant.
This is just one AI-powered service that John Deere now offers to farmers. For example, farmers can also use the company’s big-data analytics to decide where to plant crops or how to use their machinery most effectively. The company’s online portal gathers data from sensors attached to machines as well as soil probes and external datasets.
From a Street perspective, DE is a top stock to own right now. The company has received no less than nine consecutive buy ratings in the last three months.
“We think the slow recovery in Deere’s large agricultural business could accelerate in fiscal year 2019 with higher grain prices, which have a favorable set-up entering the growing season,” comments UBS analyst Steven Fisher (view Fisher’s TipRanks profile).
Market value: $771.0 billion
TipRanks consensus price target: $113.87 (13% upside potential)
AI is essential to fulfilling several goals for tech-giant Microsoft (MSFT, $101.14). Back in 2016, CEO Satya Nadella stated: “At Microsoft, we are focused on empowering both people and organizations, by democratizing access to intelligence to help solve our most pressing challenges. To do this, we are infusing AI into everything we deliver across our computing platforms and experiences.”
Indeed, Microsoft offers the triple-whammy of AI products and solutions: an AI platform for developers; AI solutions for enterprises; and intelligent applications for everyday life like Microsoft Translator and smart PA Cortana. In fact, Cortana can do everything from booking a flight to ordering a pizza to “telling you something weird.”
As you would expect, Microsoft is investing heavily in AI to stay ahead of the pack. No fewer than 8,000 employees – including everyone from engineers to researchers – are beavering away on AI products. The latest news is that Microsoft is on a hiring splurge for engineers to work on a new AI chip for the cloud. This would place Microsoft in direct competition with chip giant’s Nvidia’s (NVDA) graphics processing unit as well as Google’s tensor processing unit. These chips can make intelligent predictions based on extremely complex data patterns.
This “Strong Buy” stock boasts 16 recent buy ratings vs just 1 hold rating and 1 sell rating.
“Public cloud adoption, large distribution channels and installed customer base, and improving margins support a path to... a $1 trillion market cap for (Microsoft),” top Morgan Stanley analyst Keith Weiss (view Weiss’ TipRanks profile) recently wrote. He has a bullish $130 price target on MSFT shares.
Market value: $100.4 billion
TipRanks consensus price target: $149.16 (10% upside potential)
Cloud computing giant Salesforce.com (CRM, $135.87) offers customer relationship management to over 100,000 customers. It recently made a big leap into AI with the aptly named Einstein Analytics. “With the new AI-powered Einstein Discovery, Einstein Analytics apps can automatically analyze billions of data combinations to surface predictive insights and prescriptive recommendations,” CRM said about Einstein’s launch.
Einstein has proved very successful for CRM so far, with a notably rapid uptake. Following CRM’s first-quarter earnings, five-star Monness Crespi analyst Brian White pointed out that “on the AI front, Einstein is now providing nearly 2 billion predictions each day and double the 1 billion in 4QFY18.” Indeed, in March, Salesforce announced two big partnerships – one with International Business Machines’ (IBM) powerful AI platform Watson and the other with Amazon Connect (the new cloud-based contact center for AWS).
“Given Salesforce’s leadership position in the SaaS market with an expanding portfolio in the midst of a strong secular trend around the cloud, combined with a history of strong growth and a predictable subscription-based model, we believe investors will drive Salesforce’s valuation higher,” White writes. He has a buy rating on CRM and sees the stock spiking to $158.