If OpenAI’s ChatGPT was the biggest growth catalyst for artificial intelligence stocks this decade, then Nvidia (NASDAQ: NVDA) stock was the best place to be invested to capture the upside. Nine months after ChatGPT’s release, Nvidia stock has surged by 230% to attract a US$1.1 trillion market capitalization. Its natural to feel that you have missed the Nvidia growth opportunity. However, there are several other emerging AI-growth stocks with significant upside potential.
It’s still a complex endeavour to predict which AI platform developer will rule the world of generative AI like Meta Platforms did with social media apps Facebook and Instagram. However, the biggest beneficiaries in the AI race could be the companies engaged in building the ecosystems and “equipment” necessary for mass employment of generative AI systems – like Nvidia, and its supplier network. They will book more business regardless of who wins on the software front. Check out Teradyne (NASDAQ: TER), for example.
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Teradyne stock: A cheap AI “pick-and-shovels” stock yet to soar
Teradyne is a supplier of automated test solutions to the semiconductor industry – a key service in the AI chip production chain. The company has a lead in AI-chip production testing technology, a position that could see it grow revenue and earnings as AI chips production gains momentum over the next two to three years.
The company lists Apple, Samsung Electronics, Qualcomm, Intel, and Analog Devices as its largest customers. Orders for its AI-chip testing platforms could surge as these large semiconductor industry behemoths begin mass production of AI-chips.
Most noteworthy, Teradyne already has a foot in the consumer AI chips market. Back in 2021, Teradyne’s UltraFLEX test platform enabled AI-chip production startup Syntiant to ship millions of its microwatt-power, deep learning Neural Decision Processors (put simply, tiny AI chips) to customers. Syntiant is a 2017 startup that produces AI chips for battery-powered devices like mobile phones, smart speakers, laptops, and other personal gadgets.
Teradyne stock trades at a reasonable forward price-to-earnings (P/E) multiple of 24.5 following a 31.6% jump so far in 2023. The best returns are yet to come.
AI could give IBM stock a new lease on life
After years of lacklustre performance, International Business Machines (NYSE: IBM) is a US$126.6 billion software and technology consulting business that could receive a performance boost from AI. IBM beat analyst earnings estimates for the second quarter of 2023 as it generated double-digit growth (11% year-over-year growth) in its Data and AI consulting business segment despite a seemingly weak economy.
IBM is targeting building a US$1 billion AI consulting business. Its latest AI software, Watson X, could be the revolutionary product to rejuvenate the historically slow-growth business. The company is infusing AI into its software products, and IBM Watson can be a code-generating assistant, a customer service assistant, a tennis commentator. These are among many functions the AI platform will serve IBM’s enterprise customers with, including being a geospatial data analyst at NASA.
What’s more, IBM’s Artificial Intelligence Unit (AIU), a “first-of-its-kind” AI-chip with 23-billion transistors published in 2022, has more opportunities ahead. If the hardware becomes a big hit with enterprise customers, IBM could become an AI-chip manufacturer, a business line that may attract premium valuations.
Meanwhile, IBM stock has delivered 1.5% in total shareholder returns year to date. Investors receive a quarterly dividend that yields 4.8% annually to augment passive income. Shares trade at a cheap forward price-to-earnings (P/E) multiple of 14, and could attract higher multiples as AI takes centre stage in revolutionizing IBM’s business, and improving its fortunes as it works on its US$57 billion debt burden.
