Generative artificial intelligence (AI) is probably the hottest thing in the stock market today. By allowing users to create essays, drawings and computer programs in seconds, it has wowed the world with its capabilities. Since ChatGPT launched and knocked everyone’s socks off, generative AI stocks have been rallying. In this article, I will explore four broad categories of AI stocks that may be worth buying today (without completely endorsing any specific names).
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Chip stocks
Semiconductor (computer chip) stocks have been the most talked-about AI plays ever since AI mania kicked off in late 2022. These companies are making most of the actual profit in generative AI. Although companies like OpenAI are building very popular and useful products, they do not expect to turn profits on said products for many years.
One good example of an AI chip company is NVIDIA (NASDAQ:NVDA). It’s a U.S.-based company that makes graphics processing units (GPUs). GPUs are the most powerful kinds of processors, capable of handling billions of floating point operations (flops) per second. These types of processors are needed to handle the advanced tasks that generative AI chatbots undertake in order to serve results to end users.
For example, ChatGPT uses NVIDIA’s Blackwell chips to handle the many thousands of regression calculations that go into writing a poem requested by a user. Other companies are capable of developing AI accelerator chips, but none are quite as capable as NVIDIA’s GPUs — at least not among those being mass produced. So, NVIDIA has a very good competitive position in the world of generative AI.
Hardware companies
Next up, we have hardware companies. This would be companies like Apple (NASDAQ:AAPL) that run devices that generative AI applications run on. Apple’s newest devices have generative AI (“Apple Intelligence”) built in. This type of AI is processed on-device instead of in a data centre somewhere like OpenAI’s apps. On-device AI frequently lacks the capabilities of internet AI applications, but it allows companies to save money on NVIDIA’s exorbitantly pricey GPUs.
Software companies
Next, we have software companies. These are the companies that use generative AI to enhance their software offerings.
A good Canadian example here is Shopify (TSX:SHOP). Shopify is a Canadian e-commerce company that offers a website builder and various payment tools to business owners. It also develops point-of-sale (POS) terminals. The company uses generative AI to help vendors create product listing content (e.g., descriptions, images) quickly and without the need for expensive professional help.
By using Shopify’s generative AI, vendors can write compelling, high-converting product descriptions with only a few bullet points worth of input. It’s a huge improvement over sitting around thinking of what to write for hours or paying an ad agency thousands to create something similar.
Consultancies
Last but not least, we have consultancies that use generative AI to provide advice to clients. A good example here would be Palantir (NYSE:PLTR), which consults for the U.S. military and various companies. It has a software suite that includes many AI-based data analysis tools. Consulting isn’t the most glamorous use of AI out there, but PLTR stock certainly has a loyal cult following. I’m not convinced PLTR’s fans are right about their 30-times-sales poker chip, but their stock does represent one AI use case better than any other.
