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The Best AI Stocks to Buy for 2021 and Beyond

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·12 min read
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In this article, we discuss the 10 best AI stocks to buy for 2021 and beyond. You can skip our detailed analysis of the AI industry, and go directly to see the 5 Best AI Stocks to Buy for 2021 and Beyond.

The demand for artificial intelligence (AI) products and services has increased manifold over the last few years as it continues to transform every walk of life. According to a report published by Grand View Research, the global AI market is expected to reach $997.7 billion by 2028, growing at a CAGR of 40.2%.

The onset of Covid-19 has further enhanced the investments of big organizations in AI, as businesses moved to digital channels. McKinsey & Company reported that around 61% of high-performing organizations have increased their investments in AI during 2020, especially healthcare and automotive companies. Moreover, the report also mentions that after the pandemic, companies are more likely to carry nearly 80% of their customer interactions digitally, as compared to before the Covid-19 crisis.

AI-based revenues are expected to reach $100 billion by 2025, driven heavily by remote work, Deloitte reported. Some of the most famous AI stocks include Alphabet Inc. (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), Twilio Inc. (NYSE:TWLO), ServiceNow, Inc. (NYSE:NOW), NVIDIA Corporation (NASDAQ:NVDA), and QUALCOMM Incorporated (NASDAQ:QCOM).

As investors always look to invest in stocks that provide remunerative returns, AI stocks are gaining investors’ attention as the industry is coming to prominence. The AIEQ ETF, an exchange-traded fund that uses artificial intelligence in selecting the most promising U.S. equities, soared 20.87% year to date, compared with an 18.32% return of S&P 500 during the same period. The ETF gained strength by adding companies that exhibit better performances.

According to investment bank Oppenheimer, artificial intelligence is a rapidly growing market, powered by hardware and data analytics. The bank predicts that the market for AI hardware could reach $105 billion by 2025. This growth can be attributed to the continuous advancements made in the field. Similarly, Jim Breyer, founder of the capital market company, Breyer Capital, named Alphabet Inc. (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL) as the two companies which will continue to outperform over the next three to five years because of their progress as next-generation technology companies.

Our Methodology:

Let's analyze our list of the best AI stocks to buy for 2021 and beyond. We took into account hedge fund sentiment, analysts’ ratings, long-term growth potential, and fundamentals while choosing these stocks.

The Best AI Stocks to Buy for 2021 and Beyond
The Best AI Stocks to Buy for 2021 and Beyond

Photo on Unsplash

Why pay attention to hedge fund sentiment while choosing stocks?

Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

The Best AI Stocks to Buy for 2021 and Beyond

10. International Business Machines Corporation (NYSE:IBM)

Number of Hedge Fund Holders: 41

International Business Machines Corporation (NYSE:IBM) ranks tenth on our list of the best AI stocks to buy for 2021 and beyond. It is an American technology company that provides hardware, software, and cloud-based services to its consumers. The company’s Watson AI question-answering software is capable of communicating with people through machine learning.

Recently, International Business Machines Corporation (NYSE:IBM) signed a multi-year contract with the Spanish telecommunications company, Telefonica, to use intelligent automation software to implement a 5G core network platform.

This July, Morgan Stanley lifted its price target on International Business Machines Corporation (NYSE:IBM) to $164, while keeping an ‘Equal Weight’ rating on the shares. The firm’s analyst highlighted the company’s strong cloud revenue.

As of Q2 2021, 41 hedge funds tracked by Insider Monkey have positions in International Business Machines Corporation (NYSE:IBM), worth $1.37 billion. The number of hedge funds was the same in the previous quarter.

Like Alphabet Inc. (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), Twilio Inc. (NYSE:TWLO), ServiceNow, Inc. (NYSE:NOW), and NVIDIA Corporation (NASDAQ:NVDA), International Business Machines Corporation (NYSE:IBM) is also gaining investors’ attention in 2021.

9. Splunk Inc. (NASDAQ:SPLK)

Number of Hedge Fund Holders: 47

Splunk Inc. (NASDAQ:SPLK) is an American software company that develops web-based application software. The company’s operational intelligence software monitors, analyses, and reports real-time machine data. Splunk Inc. (NASDAQ:SPLK) stands ninth on our list of the best AI stocks to buy for 2021 and beyond.

In August, BMO Capital lifted its price target on Splunk Inc. (NASDAQ:SPLK) to $177, while maintaining an ‘Overweight’ rating on the shares. The firm’s analyst Keith Bachman appreciated the company’s consistent earnings beat for the past few quarters.

Of the 873 hedge funds tracked by Insider Monkey, 47 hedge funds have positions in Splunk Inc. (NASDAQ:SPLK) in Q2 2021, compared with 41 in the previous quarter. These stakes are valued at over $1.18 billion.

Like Alphabet Inc. (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), Twilio Inc. (NYSE:TWLO), ServiceNow, Inc. (NYSE:NOW), and NVIDIA Corporation (NASDAQ:NVDA), Splunk Inc. (NASDAQ:SPLK) is also one of the most famous AI stocks in 2021.

Miller Value Partners mentioned Splunk Inc. (NASDAQ:SPLK) in its Q2 2021 investor letter. Here is what the firm has to say:

“Our largest new position is Splunk Inc. (SPLK$138.373). Splunk typifies one of our favorite types of opportunities: a company well positioned secularly that is facing short-term business pressures. We believe there’s the opportunity to profit as the business normalizes and then compound capital beyond that. SPLK is a leading provider of security software, a growing market due to exploding cyber threats.

Splunk is in the middle of a multi-year business model transition that has negatively impacted financials and increased uncertainty. We believe we are finally past the worst of the transition with revenues troughing in FY2020. We expect the company to return to positive free cash flow generation in the second half of this year.

SPLK trades at half the multiple of comparables. We believe that gap will close as the market gets more certainty that the transition is working. The stock recently jumped on the announcement that Silver Lake, an excellent tech investor, invested $1B in a convertible senior note and the company announced a $1B repurchase authorization. We believe the stock is worth well more than its old high (~$2204) creating significant upside potential for those patient enough to hold through the transition.”

8. DocuSign, Inc. (NASDAQ:DOCU)

Number of Hedge Fund Holders: 58

DocuSign, Inc. (NASDAQ:DOCU) is an American technology company that allows organizations and companies to manage electronic agreements with the help of DocuSign Agreement Cloud. The company’s special software allows e-signature services to sign electronically on different devices. DocuSign, Inc. (NASDAQ:DOCU) ranks eighth on our list of the best AI stocks to buy for 2021 and beyond.

Recently, Evercore ISI lifted its price target on DocuSign, Inc. (NASDAQ:DOCU) to $320 and keeps an ‘Outperform’ rating on the shares, highlighting the company’s strong second quarter.

As of Q2 2021, 58 hedge funds tracked by Insider Monkey have positions in DocuSign, Inc. (NASDAQ:DOCU), compared with 60 in the previous quarter. The total value of these stakes is over $4.6 billion. Aubrey Capital Management is the company’s leading shareholder, with shares worth over $9.6 billion.

In addition to Alphabet Inc. (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), Twilio Inc. (NYSE:TWLO), ServiceNow, Inc. (NYSE:NOW), and NVIDIA Corporation (NASDAQ:NVDA), analysts and investors are also paying attention to DocuSign, Inc. (NASDAQ:DOCU) amid the company’s future growth potential.

Carillon Tower Advisers mentioned DocuSign, Inc. (NASDAQ:DOCU) in its second-quarter 2021 investor letter. Here is what the firm has to say:

DocuSign provides electronic signature solutions. The firm reported an excellent quarter and investors have appreciated the strong growth combined with the excellent margins the company has posted. DocuSign has a long runway of growth ahead and we believe that it remains in a favorable position to continue gaining market share from traditional manual and paper-based signature solutions.”

7. Snowflake Inc. (NYSE:SNOW)

Number of Hedge Fund Holders: 70

Snowflake Inc. (NYSE:SNOW) stands seventh on our list of the best AI stocks to buy for 2021 and beyond. It is a cloud computing-based data warehousing company that allows users to store and analyze data using cloud-based software and hardware.

Recently, Snowflake Inc. (NYSE:SNOW) announced the development of its new platform, Financial Services Data Cloud, to assist Financial Services organizations to enhance the use of data for growing their businesses. In Q2 2021, Snowflake Inc. (NYSE:SNOW) posted a GAAP EPS of -$0.64, beating the consensus by $0.02. The company’s revenue for the quarter stood at $272.2 million, up 104.4% from the prior-year quarter.

In August, both Cowen and Goldman Sachs lifted their price targets on Snowflake Inc. (NYSE:SNOW) to $335 and $340, respectively. Goldman Sachs’ analyst Kash Rangan highlighted the company’s product revenue beat and reiterated a ‘Buy’ rating on the shares.

Of the 873 hedge funds tracked by Insider Monkey, 70 hedge funds have positions in Snowflake Inc. (NYSE:SNOW) in Q2 2021, compared with 71 in the previous quarter. These stakes are valued at over $12.5 billion. With over 24.9 million shares, worth $6.03 billion, Altimeter Capital Management is the company’s largest shareholder.

Like Alphabet Inc. (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), Twilio Inc. (NYSE:TWLO), ServiceNow, Inc. (NYSE:NOW), and NVIDIA Corporation (NASDAQ:NVDA), Snowflake Inc. (NYSE:SNOW) has also been on investors’ radar in 2021.

RiverPark Funds mentioned Snowflake Inc. (NYSE:SNOW) in its first-quarter 2021 investor letter. Here is what the firm has to say:

“We also established a position in Snowflake during the quarter. Snowflake offers cloud-based data storage and analytics, generally termed “data warehouse-as-a-service.” The data warehousing market—created by the massive, growing amount of user, customer, and account data and the need to search and analyze it—has historically stored its data on physical servers located on-premises. The cloud data platform market—storing data off-premises on cloud servers—is a relatively new $70 billion+ market. Significantly, incremental warehouse data capacity and renewals are expected to be driven by and to the cloud, with more than 75% of databases in the cloud by 2022.

Snowflake requires absolutely no infrastructure management from its users, is fully scalable for each customer, runs on Amazon, Microsoft, or Google cloud platforms, and most critically, Snowflake helps companies analyze their data. The company also has a unique, customer-aligned billing model based on usage. All of which has led to Snowflake being among the leaders of this highly fragmented market, posting 124% revenue growth last year. SNOW’s growth comes from the combination of more customers—which grew 73% last year—and customers buying more services—the company boasts an amazing 150%+ net customer retention. The company’s growing scale has also led to increasing gross margin and operating leverage, up 1,100 basis points and 8,200 basis points, respectively, over the past two years. The company has guided to FCF break-even this year, and with the company’s capital expenditure-light model—Snowflake uses the public cloud for hosting—we expect FCF to grow much faster than revenue growth, which we forecast to grow comfortably more than 50% per year for the next several years. Additionally, we have great confidence in the SNOW management team, which previously had an enormously successful run guiding one of our other core Cloud software holdings ServiceNow.”

6. QUALCOMM Incorporated (NASDAQ:QCOM)

Number of Hedge Fund Holders: 72

QUALCOMM Incorporated (NASDAQ:QCOM) is an American multinational company that deals in the components of wireless technologies. The company is transforming industries by accelerating the global commercialization of AI. QUALCOMM Incorporated (NASDAQ:QCOM) ranks sixth on our list of the best AI stocks to buy for 2021 and beyond.

Recently, QUALCOMM Incorporated (NASDAQ:QCOM) acquired Veoneer, a Swedish provider of automotive technology, in a deal worth $4.6 billion to provide industry-leading automotive solutions. In Q3 2021, QUALCOMM Incorporated (NASDAQ:QCOM) posted an EPS of $1.92, beating the consensus by $0.24. The company reported revenue of $8.06 billion, presenting a 64.5% year-over-year growth. In September, Tigress Financial raised its price target on QUALCOMM Incorporated (NASDAQ:QCOM) to $195, while keeping a ‘Buy’ rating on the shares.

As of Q2 2021, 72 hedge funds tracked by Insider Monkey have positions in QUALCOMM Incorporated (NASDAQ:QCOM).

ClearBridge Investments released its first-quarter 2021 investor letter and mentioned QUALCOMM Incorporated (NASDAQ:QCOM) in it. Here is what the firm has to say:

“Within IT, we have also increased exposure to a cyclical semiconductor industry currently working through a severe supply shortage due to several years of capacity reductions, COVID-19 shutdowns and one-off production delays as well as demand resilience in areas like autos and smartphones. The main risk for semiconductors is short-term revenue pressure until capacity catches up with demand, which hurt wireless chipmaker Qualcomm. Looking past current constraints, we expect the industry to see a strong second half and solid growth in 2022.”

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Disclosure. None. The Best AI Stocks to Buy for 2021 and Beyond is originally published on Insider Monkey.