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3 Top Artificial Intelligence Stocks to Watch in March

Leo Sun, Jamal Carnette, CFA, and Demitrios Kalogeropoulos, The Motley Fool

The artificial intelligence market is often cited as the next frontier for many tech companies, since AI algorithms can quickly crunch large amounts of data to automate decisions. However, AI is frequently tossed around as a buzzword, which makes it tough for investors to identify the top investments in the market.

Today, a trio of our Motley Fool contributors will highlight three companies that have established firm footholds in the nascent AI market: Baidu (NASDAQ: BIDU)NVIDIA (NASDAQ: NVDA), and AMD (NASDAQ: AMD).

A robot looking out the window of a skyscraper.

Image source: Getty Images.

A growing gorilla in the AI and driverless markets

Leo Sun (Baidu): Chinese tech giant Baidu, which owns the country's largest search engine, is also one of the world's biggest players in artificial intelligence. Like its overseas counterpart Alphabet's Google, Baidu accumulated large amounts of data through its search engine, mapping platform, mobile app, and cloud services.

To organize all that data, it founded its Big Data Lab in 2014 to enhance its machine learning algorithms, analytics, and core search technologies. That lab launched Baidu's virtual assistant, DuerOS, and a growing list of Echo-like smart speakers.

Baidu also launched a state-backed deep-learning laboratory, and was appointed by the Chinese government to develop the country's driverless cars. Baidu's Project Apollo, which develops an open-source operating system for driverless cars, has already attracted dozens of tech companies, automakers, and automotive suppliers.

In China, Baidu recently launched a next-gen electric car with domestic automaker Chery that sports face-scanning payment and AR navigation features. In the U.S., Baidu tests cars from its Silicon Valley lab, and it recently started delivering groceries for Walmart via the courier service Udelv. Baidu considers AI to be one of its three "ABC" (AI, big data, and cloud) markets that will expand its ecosystem beyond online ads.

Baidu's stock struggled over the past year due to trade tensions and concerns about softer spending from advertisers. Those near-term headwinds won't subside anytime soon, but the stock looks historically cheap at 14 times forward earnings. Therefore, investors who have faith in Baidu's plans for the AI and driverless car markets should consider buying its stock as a long-term investment.

Answering key questions from investors

Demitri Kalogeropoulos (NVIDIA): NVIDIA's annual investor day meeting is set for Tuesday, March 19, and there could be extra stock volatility on and around that key date. The company has plenty of key shareholder concerns to address, after all, beginning with the surprisingly weak sales pace it announced for its fiscal fourth quarter.

The chipmaker said in mid-February that a few negative trends should combine to hold revenue roughly flat in 2019, but a few more weeks of actual results might inform an updated outlook at the investor day conference. It's not obvious, for example, how NVIDIA can make up all the lost sales from its weakening gaming segment even with sharp growth in its other niches.

Additionally, investors will be keen to hear more details about management's biggest acquisition to date, the $6.9 billion purchase of semiconductor specialist Mellanox Technologies (NASDAQ: MLNX). In announcing the purchase, NVIDIA CEO Jensen Huang said Mellanox's networking platform should combine well with its computing platform to help deliver far stronger datacenters for customers. Investors will soon get a chance to hear directly from the management team about why they chose this moment to make such an aggressive purchase.

AMD will continue to benefit from data center growth

Jamal Carnette, CFA (AMD): Even though deep learning is only a subset of artificial intelligence, it is often what most investors envision when they think of the technology. This makes sense: As the most advanced subset of AI, deep learning's applications include next-gen technology like autonomous driving and fully automated smart home systems.

However, deep learning has a problem in that it requires significant compute power to fulfil ongoing inquiries. The rise of the data center has been a boon for companies that provide cloud-based solutions to handle increased computing demand such as AMD's EPYC servers and Radeon GPUs. This will continue for the immediate future as computing needs increase.

Servers in a data center.

Image source: Getty Images.

Despite AMD stock continuing to post strong returns, the company has doubters predicated upon two theses: The first is that continued volatility in the cryptocurrency markets will dampen demand for the company's GPU business. In spite of the cacophony surrounding AMD's crypto dependence, even here among fellow Fools, AMD has nearly doubled since these concerns peaked. This is simply a short-term concern that will soon no longer be reflected in comps.

The second is the company will lag behind others, specifically NVIDIA, post-Mellanox acquisition. However, this posits that data center/AI is a winner-take-all market and this does not appear to be the case. If anything, AMD continues to surprise observers as it grows market share at the expense of Intel. AMD could have short-term volatility, but the long-term growth story remains intact.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Demitrios Kalogeropoulos has no position in any of the stocks mentioned. Jamal Carnette, CFA owns shares of Alphabet (C shares). Leo Sun owns shares of Baidu. The Motley Fool owns shares of and recommends Alphabet (C shares), Baidu, and Nvidia. The Motley Fool has a disclosure policy.