Artificial intelligence is the hottest area of the stock market right now. A screen of five ETFs points to a list of highly favored companies
There are always fads in the stock market, but now we are in the midst of what could turn out to be a revolutionary trend that will last much longer than any fad -- artificial intelligence.
In the Need to Know column on Feb. 9, Edward Stanley, who leads a team of strategists at Morgan Stanley, was quoted calling AI the real deal: "Generative AI, now popularized by ChatGPT, is showing all the usual hallmarks of hype," he wrote. But then he added that "something suggests the AI hype is worth considering seriously," calling it "the fastest platform to a million users and fastest to 100 million site views."
Stanley called generative AI a "serious contender" for "tech diffusion with real market impact potential."
When screening companies by business focus, it helps to have an industry label, such as "semiconductors." Such isn't the case for AI. One easy way to jump on the trend bandwagon would be to purchase shares of Microsoft Corp. (MSFT), which provided $1 billion in funding for OpenAI when it began to develop ChatGPT, and is now ponying up billions more. Microsoft has been demonstrating how it will integrate ChatGPT with its Bing search engine.
Related:Google's stock dips on demonstration of its AI chatbot, Bard
For a new screen of AI-related stocks, we began by looking at the holdings of five exchange-traded funds with AI in their names:
Taking all the stocks held by the ETFs together, we narrowed the list to 96 stocks held by at least two of the funds. We then narrowed further to 88 companies covered by at least five analysts polled by FactSet.
Among those 88 companies, 30 are rated a "buy" by at least 75% of analysts covering the stocks. Sometimes price targets can get ahead of analysts' targets, especially in such a hot area of the stock market.
So we have narrowed the list further to the 20 stocks for which analysts see the most upside potential over the next 12 months, based on consensus price targets. Prices and targets are in local currencies, where the stocks are listed.
Company Ticker Country Share "buy" ratings Feb.8 price Cons. price target Implied 12-month upside potential Darktrace PLC UK:DARK U.K. 75% 2.43 4.49 85% Taiwan Semiconductor Manufacturing Co. Ltd. ADR TSM Taiwan 90% 94.28 156.34 66% Meituan Class B HK:3690 China 94% 153.10 238.68 56% JD.com Inc. ADR Class A JD China 88% 55.35 81.76 48% CrowdStrike Holdings Inc. Class A CRWD U.S. 89% 114.48 160.46 40% Alibaba Group Holding Ltd. ADR BABA China 93% 105.11 146.97 40% Amazon.com Inc. AMZN U.S. 93% 100.05 134.04 34% Nidec Corp. JP:6594 Japan 87% 7,223.00 9,462.88 31% Sony Group Corp. JP:6758 Japan 88% 11,955.00 15,354.71 28% PROS Holdings Inc. PRO U.S. 86% 28.40 36.17 27% Alphabet Inc. Class A GOOGL U.S. 92% 99.37 125.76 27% Denso Corp. JP:6902 Japan 95% 7,342.00 9,138.24 24% Palo Alto Networks Inc. PANW U.S. 89% 166.14 205.66 24% Infineon Technologies AG XE:IFX Germany 80% 35.52 43.90 24% Nice Ltd. ADR NICE Israel 92% 222.79 265.94 19% ASML Holding NV ADR ASML Netherlands 85% 662.79 782.00 18% Samsung Electronics Co. Ltd. KR:005930 South Korea 95% 63,100.00 74,194.45 18% Synopsys Inc. SNPS U.S. 93% 360.60 419.07 16% ServiceNow Inc. NOW U.S. 89% 463.98 518.18 12% Apple Inc. AAPL U.S. 76% 151.92 168.29 11%
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