4 AI stocks that will surge in 2021 as artificial intelligence takes hold

These companies can be expected to post big gains as the market for AI takes off.

  • By Joel Baglole,
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Artificial intelligence (AI) is creeping into our everyday lives, often without us realizing it. Today, AI can be found in the digital assistants we use such as Apple’s (AAPL) Siri and Amazon’s (AMZN) Alexa to check our schedules and search for things on the internet; in the cars we own that now park themselves as they are able to recognize space around the vehicle; and in the small robots we use to clean our houses, such as the Roomba vacuum.

Artificial intelligence is becoming more a part of our lives all the time, and will only grow in importance in coming years.

In the not too distant future, AI will influence everything from how we shop for groceries to how diseases are diagnosed and treated by doctors. It all adds up to a fast growing market. Conservative estimates peg spending on AI software will top $125 billion by 2025 as organizations integrate AI and machine learning into their business processes.

In this article we look at four leading artificial intelligence stocks that are likely to surge in 2021 and beyond as the future is built around us.

IBM

IBM’s (IBM) research division has long been a leader in developing artificial intelligence. The company’s most famous AI creation is its Watson computer. Named after IBM founder, industrialist Thomas J. Watson, the supercomputer can answer questions that are posed to it in plain language.

In 2011, Watson famously competed on the Jeopardy! quiz show against two of the program’s greatest champions (Ken Jennings and Brad Rutter) and won. Today, Watson-based programs are now being used across a range of industries — from helping to diagnose patients in hospitals, to forecasting the weather, preparing taxes and developing advertisements that resonate with consumers.

Earlier in October, IBM made a major announcement that the 109-year old company will break itself up so that management can focus more on cloud computing and developing artificial intelligence solutions under its Watson brand. The break-up will see IBM’s mainstay IT infrastructure services unit spun off into a new, as yet unnamed, company while IBM narrows its focus on cloud computing and AI products and services.

The decision was warmly received by Wall Street. IBM stock jumped 10% on the news. IBM shareholders are poised to reap even more growth over the next year once the company successfully transitions to making AI the center of its business. The median price target on the stock is $140 a share over the coming 12-months.

Alphabet

Alphabet (GOOGL) is more than its ubiquitous search engine Google. The Mountain View, California-based company is involved in everything from healthcare and smart phones to self-driving cars and drones. Alphabet today is quite a diverse business.

One of its main divisions is DeepMind, which focuses on developing artificial intelligence and adding it across Google products. DeepMind has been employing AI to improve items we use everyday such as Google Maps and the Google Nest smart home hub. DeepMind has also contributed to the Alphabet’s development of self-driving cars and wearable tech such as Alphabet’s line of smartwatches.

Clearly, Google sees AI as being a significant part of its and our futures. Of course, Alphabet still derives the vast majority of its revenue from online advertising. But the company is using those funds to invest in new business lines and develop new ventures.

Artificial intelligence is one of its areas of strategic investment. GOOGL stock endured a correction with the broader technology sector in September, but many analysts now see the share price moving higher. Deutsche Bank recently upgraded its price target on the stock to $2,020 a share, up from a previous price target of $1,975 and nearly 30% above the $1,567 that Alphabet shares are trading at today.

Nvidia

Nvidia (NVDA) isn’t just using artificial intelligence, it is creating it. The Santa Clara, California-based company just announced that it will be powering the world’s fastest AI supercomputer that will be based in Europe and called “Leonardo.” The world’s fastest computer is expected to be involved in drug discovery, space exploration and weather modelling around the world. And powering it all will be Nvidia’s Ampere-based graphics cards and Mellanox HDR 200 GB networking system.

Besides the Leonardo super computer undertaking, Nvidia is also using AI that it developed to improve video conferences, sharpening images and lessening instances of dropped calls and frozen screens. And the company’s graphics chips are being used to power the next generation of video game consoles and cloud-based gaming that is expected to use AI to deepen the gamer experience.

Nvidia is so heavily invested in artificial intelligence that on Oct. 5, company CEO Jensen Huang declared that we are now living in the “age of AI,” and said “AI requires a whole reinvention of computing, full-stack rethinking, from chips to systems, algorithms, tools, the ecosystem.”

Nvidia has been on an acquisition spree this year, buying companies that can help it advance its AI capabilities. Companies such as Mellanox Technologies, and its more recent $40 billion bid for ARM Holdings. Everything the company has been doing is getting applause from investors.

NVDA stock is up 185% since its March low and now trades at $553 a share. Analysts see nothing but upside ahead. The median price target of 35 analysts who cover Nvidia is for the company’s stock to reach $590 a share within 12-months. Some analysts see the stock hitting $700 per share.

Tencent

China is a major player (and U.S. rival) in artificial intelligence. So we would be remiss if we didn’t include a Chinese leader in AI on this list. And Tencent (TCEHY) gets the nod.

In 2016, Tencent opened an artificial intelligence laboratory in Shenzhen where it is based with a vision to “make AI everywhere.” Today, the company is developing and perfecting machine learning, speech recognition, natural language processing and computer advancements all in an effort to create practical AI applications in the areas of content, online games, social media and cloud services.

The company is also deploying its AI to video games and healthcare, recently announcing new noise reduction technology for cochlear implants that enable hearing impaired people to hear more clearly in loud environments.

While Tencent and its stock have gotten caught up in the geopolitical fight over technology that’s been taking place between China and the U.S., and, to a lesser extent, between China and the European Union, TCEHY stock is nevertheless worth considering, especially for investors who want exposure to China’s fast growing economy and technology.

Tencent shares are up 65% since March and now trade just shy of $73 a share. Analysts covering the company see the share price rising another 7% to 10% in the coming 12-months. If Tencent continues to lead in the AI space, its share price could outperform in 2021.

On the date of publication, Joel Baglole held shares of AAPL and NVDA.

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