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AI Sure to Prosper & Defy Buffett's Criticism: 4 Tech Picks

Aniruddha Ganguly
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Artificial Intelligence (“AI”) focuses on developing computer algorithms by analyzing the working of the human brain when it comes to solving complex problems.

The technology has rapidly promulgated into various industries driven by the increasing usage of tools like Machine Learning (“ML”), deep learning, natural language processing (NLP), speech recognition, virtual agents, AI-Optimized Hardware, robotic processes automation, and biometrics.

However, despite the growing buzz around AI, the technology has received a fair bit of criticism from various corners of the society, most recently from legendary investor Warren Buffett.

At the recently concluded Berkshire Hathaway’s annual meeting Buffett and another famed investor Charlie Munger discarded AI as overrated.

The Oracle of Omaha predicted that AI and automation could create “huge problems in terms of democracy”, as technology will continue to replace human labor, creating political uncertainty.

Apart from Buffett and Munger, who are well-known for their averseness toward technology stocks, AI has also received strong criticism from Elon Musk, CEO of Tesla TSLA.

Musk has been vocal for sometime about drafting proactive regulations on AI. “But until people see robots going down the street killing people, they don’t know how to react,” he famously stated last year.

Notably, Tesla’s self-driving cars utilize deep learning machines, which is an AI-based tool.

Benefits of AI are Numerous

Although criticism from the likes of Buffett and Musk creates uncertainty, we believe AI technology has significant growth potential due to the benefits it brings to the society.

For instance, the usage of AI in autonomous vehicles is expected to prevent crashes and make roads safer. Automotive makers are reportedly planning to embed AI services into their vehicles, which will allow passengers to control the car through natural language voice commands.

AI is bringing revolutionary changes to the field of Healthcare. AI tools are now being used to mine and analyze data that is making it easier for healthcare professionals to diagnose and treat many medical conditions.

According to a BBC report, researchers at Oxford hospital have developed an AI that can diagnose scans for heart disease and lung cancer. Another AI system has been found effective in identifying harmless lung cancer cases. The adoption of the technology in the United States and the European Union could save £10 billion in diagnosis costs.

Moreover, adoption of machine learning and AI related tools are anticipated to change future of investing. According to Bloomberg, well-known money managers like Two Sigma and Goldman Sachs have already adopted AI technology as research tool.

Apart from these fields, AI technology is also gaining popularity in industries like cybersecurity, e-commerce and customer service.

Robust Growth Projections

According to market research firm Gartner, AI’s global business value is expected to soar 70% year over year to $1.2 trillion in 2018. Moreover, AI-derived business value could reach as high as $3.9 trillion in 2022.

Per another market research firm IDC, spending on AI and ML is projected to grow from $12 billion in 2017 to $57.6 billion by 2021. Moreover, the global machine learning market is expected to grow at a CAGR of 44.1% between 2017 and 2022 to reach $8.81 billion.

Forbes quoted Deloitte Global data, according to which almost 800K ML chips will be used across global data centers in 2018. At least 25% of these will be Field Programmable Gate Arrays (“FPGA”) and Application Specific Integrated Circuits ("ASICs").

Our Picks

Here we pick four tech stocks that are likely to benefit most from the growing proliferation of AI technology and its tools.

Amazon AMZN has become a prominent AI technology provider through its Echo devices and Alexa virtual personal assistant. The company is using AI to offer product recommendation, predict substitute product and fraud detection. This is actually improving customer experience, which is reflected in solid top-line growth and profitability.

Amazon has beaten the Zacks Consensus Estimate in three of the four trailing quarters, with an average positive surprise of 1,303.34%. Its long-term earnings growth rate is currently pegged at 30.2%.
 

Amazon.com, Inc. Price and Consensus

Amazon.com, Inc. Price and Consensus | Amazon.com, Inc. Quote

 

Currently, Amazon sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Twitter TWTR is leveraging AI to boost algorithm that ranks tweets based on relevance instead of the usual reverse chronological order. The company is also using AI to fight the fake-news menace.

This Zacks Rank #1 stock is now using AI to improve overall user experience. With the help of AI, Twitter is making its image cropping tools more appealing. The company is also monitoring live video feeds and categorising them based on subject matter to improve their searchability. These are expected to drive active user base in the long haul.
 

Twitter, Inc. Price and Consensus

Twitter, Inc. Price and Consensus | Twitter, Inc. Quote

 

Twitter has beaten the Zacks Consensus Estimate in the four trailing quarters, with an average positive surprise of 48.93%. Its long-term earnings growth rate is currently pegged at 23.1%.

NVIDIA NVDA provides the necessary chips that support massive parallel processing, which is needed to run AI and ML algorithms. The company is one of the leading players in selling GPUs to data-center service providers and its client list includes Amazon, Microsoft and Alphabet. Moreover, the company is a front-runner in providing technology for autonomous vehicles, which is key catalyst going forward.

This Zacks Rank #2 (Buy) stock has beaten the Zacks Consensus Estimate in the four trailing quarters, with an average positive surprise of 40.10%. Its long-term earnings growth rate is currently pegged at 10.3%.
 

NVIDIA Corporation Price and Consensus

NVIDIA Corporation Price and Consensus | NVIDIA Corporation Quote

 

Alphabet GOOGL is one of the dominant providers of AI technology. The company has acquired 12 AI start-ups including DeepMind over the last four years. Alphabet uses AI to improve its services including search. The company has a major software project in TensorFlow as well as its own Tensor AI chip project.
 

Alphabet Inc. Price and Consensus

Alphabet Inc. Price and Consensus | Alphabet Inc. Quote

 

Alphabet has beaten the Zacks Consensus Estimate in three of the four trailing quarters, with an average positive surprise of 7.8%. Long-term earnings growth rate for this Zacks Rank #3 (Hold) stock is currently pegged at 17.2%.

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