AI Investing 101: How to Choose the Right Stocks for Your Portfolio 

Most tech companies you know are tapping the AI boom. But which stocks are making money from generative AI? Let’s find out.

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Every tech company has put their best minds to work to tap the artificial intelligence (AI) boom. But what is AI? As the name suggests, AI is a computer trying to replicate human intelligence processes of perceiving, reasoning, learning, and interacting with information. Until now, we have seen AI in natural language processing, speech recognition, and machine vision. The Alexa and Siri you talk to are the very first applications of AI. But they are not AI stocks.

Investing in AI stocks

But the AI frenzy we are talking about is generative AI that goes beyond recognizing your speech and finding answers from the internet to generating its own content. Hence, the word generative. A computer system that can generate codes and images is revolutionary. Most investors don’t understand the difference and just rush to invest in anything that spells AI. 

When you look at AI from an investment perspective, see if the AI feature will impact the company’s fundamentals. For instance, Shopify added AI-generated product descriptions as a feature on its platform to help merchants set up their online stores faster. Will it improve Shopify’s revenue? We don’t see any near-term impact on its subscriptions. 

Now think, is Shopify the tech stock that can rally in the AI boom? No.

Then, how do you choose the right AI stocks for your portfolio? 

Three AI stocks for your portfolio 

Look for companies that are selling AI as a product and supporting the adoption of AI and future generations of AI. Here are three stocks that will see a direct impact on their revenue from AI adoption. 

Nvidia stock

Nvidia (NASDAQ:NVDA) is among the first few hardware companies that made AI possible. The company designs graphics processing units (GPUs) that handle high-performance computing workloads needed to power AI. The AI systems are trained on Nvidia’s GPUs. It has a full stack of data centre GPUs, computer GPUs, network infrastructure, and automotive GPUs that can support AI computing from the cloud to the edge. 

Nvidia estimates the AI ecosystem to be a $1 trillion addressable market, including a $300 billion data centre market and $300 billion automotive market. The company even guided its second-quarter revenue to grow 64% year over year to US$11 billion, driven by data centre revenue. 

Hence, Nvidia’s 38% jump in stock price at the end of May is justified. 

Nvidia stock is trading at a very high valuation, 39.6 times its sales per share and 55.3 times its forward earnings per share. Add this stock to your watchlist and buy it in the next dip. 

BlackBerry stock 

While Nvidia has picked up the AI rally, BlackBerry (TSX:BB) stock hasn’t, probably because investors don’t see a direct connection. BlackBerry stock did jump 18% last week, but it was because of a recovery in the cybersecurity business. 

BlackBerry is a cybersecurity and endpoint management solutions provider. It is now looking to secure the hyper-connected Internet of Things (IoT) system through its cloud and endpoint cybersecurity, QNX operating system, and IVY connectivity platform. This convergence could grow the IoT opportunity fivefold for BlackBerry.

A growing number of cyberattacks and malware has created a shortage of cybersecurity staff. And with generative AI like ChatGPT and Bard snooping around the online data files, the need for cybersecurity is growing. Many experts have posed a risk of hackers using generative AI. Advanced technology needs advanced cybersecurity. 

BlackBerry expects its cybersecurity revenue to increase at a compound annual growth rate of 12% by fiscal 2026, making it a stock to tap AI growth. 

Hive Blockchain 

Today, we are discussing security issues coming from ChatGPT. Experts have cautioned users not to share confidential information with these AI chatbots as they are programmed to use your data to learn more about you. Companies looking to use generative AI for their secure database can now use Hive Cloud services to train their AI models in return for a fee. 

Yes, it’s the same Hive Blockchain Technologies (TSX:HIVE) that mines Bitcoin. The company has created a new revenue stream for its GPU-powered data centres with Hive Cloud. 

Before investing in a trend, see how the company can earn money from the trend. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Nvidia. The Motley Fool has a disclosure policy.

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