Artificial intelligence (AI) is making its way into almost every industry, and into many investors' portfolios. AI refers to the use of data to simulate human intelligence processes including learning, reasoning and self-correction by machines. With IDC predicting that the amount of data being produced will reach 40 trillion gigabytes by 2020, the implications of this technology in terms of efficiency are massive.
This fact has not been ignored by Wall Street. Analysts say that plenty of compelling investments can be found within this space.
Let’s take a closer look at 3 AI stocks garnering praise from the Street.
Nuance Communications Inc. (NUAN)
Nuance wants to change the relationship between people and technology with its conversational AI. Its solutions can be utilized within the healthcare, automotive, financial services and several other sectors of the market. With shares up 28% year-to-date, some analysts say this AI stock is just getting started.
Investors have been impressed with the company’s shift in strategy. NUAN’s new approach focuses on its solutions geared towards healthcare and enterprise. As a part of these efforts, it agreed to sell Kofax its imaging business for $404 million and will split the automotive segment into a separate company in October. This will allow the company to put its resources towards expanding its AI Software-as-a–Service (SaaS) platform to capitalize on the growing need for digital medical records.
Not to mention NUAN announced on August 23 that it will be releasing a new AI-based platform, the Computer-Assisted Physician Documentation (CAPD) solution, to help surgeons with documentation before and after operations.
“The AI component is critical to the efficiency and ease of use as it relates to workflow, helping to guide surgeons through the documentation process by providing the relevant, episodic, in-workflow guidance needed to capture the required level of specificity and relative completeness of the note leading to appropriate reimbursement in a complex specialty,” Senior Vice President Michael Clark said.
While the company hasn’t generated a profit in the last year, its August 7 Q3 earnings release demonstrated progress with it beating the consensus estimate for EPS. Based on all of these factors, Wedbush analyst Daniel Ives reiterated his Buy rating and $22 price target on August 8. The four-star analyst believes shares could soar 29% over the next twelve months.
All in all, the Street is cautiously optimistic about NUAN. The stock has a ‘Moderate Buy’ analyst consensus and a $22 average price target, suggesting 29% upside.
CrowdStrike Holdings Inc. (CRWD)
This newly public company believes AI can help fight off hackers in the battle against cyber threats. Gartner’s leader in the cybersecurity space is already up 52% since its June 12 IPO with a slowdown not expected anytime soon.
The company currently uses machine learning, one type of artificial intelligence, to find malware on devices operating on a corporate network. That being said, CRWD has remained committed to expanding its product offerings. On August 6, it announced the launch of the newest addition to its Falcon platform, CrowdScore. The metric allows customers to instantly see the real-time threats their organizations are facing so they can quickly respond.
“With the introduction of CrowdScore, CrowdStrike is revolutionizing the approach organizations take to understand and respond to threats and transforms the way customers use the CrowdStrike Falcon platform,” said CTO Dmitri Alperovitch.
Some investors have expressed concerns that VMware’s (VMW) acquisition of Carbon Black (CBLK), a cloud-native endpoint protection cybersecurity firm, could negatively impact the company as CBLK is CRWD’s direct competitor. However, one five-star analyst believes that CRWD could actually stand to benefit from this acquisition.
“We view VMware's acquisition of CBLK to be a net positive for CRWD as CBLK will need to deal with integration matters into VMW's platform as well as the typical change-of-control potential disruption, be it management changes or team departures,” Oppenheimer analyst Shaul Eyal explained. As a result, he reiterated his Buy rating on August 23.
Wall Street is in favor of CRWD in spite of the minor downside it sees. While its $85 average price target implies 4% downside, the consensus among analysts is that the cybersecurity stock is a ‘Moderate Buy’.
The last AI stock on our list uses the technology to provide customer relationship management (CRM), marketing and sales software to simplify customer acquisition. It doesn’t hurt that shares are already up 60% year-to-date, with some analysts picking this stock based on its potential for even further long-term growth.
HubSpot’s existing AI-based solutions use data to help businesses gain valuable insights regarding what content drives the most traffic as well as make predictions on sales leads, with new products constantly being added.
“Over the last year, we've rolled out the biggest expansion to our product footprint in our history with the introduction of a slew of new products and tiers that have filled in the gaps across our entire HubSpot suite. As we've done so, we've seen terrific cross-platform adoption,” CEO Brian Halligan noted.
In addition to these new products, the company updated its social media tools and campaign tools to improve their functionality.
HUBS’s tactics appear to be working. According to its August 6 Q2 earnings release, the company boasts almost 65,000 customers including Subaru (FUJHY) and Doordash. Not to mention HUBS saw a quarterly subscription revenue gain of 34% from the prior-year quarter.
Five-star analyst, Marshall Senk, believes the company’s impressive Q2 performance demonstrates the strength of its AI-based software. Based on all of the above factors, he initiated coverage with a Buy and set a $222 price target on August 13. The Compass Point analyst thinks shares could surge 10% over the next twelve months.
With 6 Buy ratings vs 4 Holds received over the last three months, the consensus among analysts is that HUBS is a ‘Moderate Buy’. Its $202 average price target suggests minor upside of less that 1%.