With AI having a wide range of applications across various sectors, AI adoption and investment are increasing rapidly among organizations to transform their business and gain a competitive edge. Hence, investors could buy shares of AI companies of Alphabet Inc. (GOOGL), Adobe Inc. (ADBE), and Baidu, Inc. (BIDU), which look well-suited to ride the AI wave. Let’s discuss this in detail.
Artificial Intelligence (AI) has permeated multiple facets of our society over the past decade, from chatbots and virtual assistants like Siri and Alexa to self-driving cars and automated industrial machinery. But the introduction of ChatGPT by OpenAI in November last year catapulted the industry into the limelight.
The viral success of the AI-powered chatbot has prompted an increase in AI investment alongside rapid adoption of this technology among enterprises and individuals. Businesses are turning to AI to improve efficiencies, save time, and cut costs.
A Forbes Advisor survey of 600 business owners found that 64% believe AI would improve customer relationships and boost productivity, while 60% expect it to drive sales growth. Additionally, 59% of businesses anticipate cost savings, and 42% see the potential for streamlining job processes through AI implementation.
According to Market Research, the global AI market is expected to grow at a 26.8% CAGR reaching a staggering $459.30 billion by 2030. The Global X Artificial Intelligence & Technology ETF’s (AIQ) 17.6% returns over the past six months demonstrate investors’ bullish sentiment toward AI stocks.
Let’s explore quality stocks GOOGL, ADBE, and BIDU in more detail to understand why they are poised for solid growth and profitability in the current AI era.
Alphabet Inc. (GOOGL)
GOOGL operates through three segments: Google Services for products and services; Google Cloud for enterprise-focused infrastructure and collaboration tools, and Other Bets for health tech and internet services. Additionally, Google Workspace provides secure communication and collaboration tools like Gmail, Docs, Drive, and more.
Yesterday, Google disclosed its plans to incorporate more advanced artificial intelligence technology into its dominant search engine. Google has been conducting tests on its conversational chatbot, Bard, and unveiled that it will now be accessible to everyone in over 180 countries and languages other than English.
By incorporating more advanced AI technology into its search engine, Google could enhance the user experience by providing more accurate and personalized search results. This, in turn, could increase user engagement and loyalty, leading to higher revenue for the company.
GOOGL’s revenues increased 2.6% year-over-year to $69.79 billion in the first quarter that ended March 31, 2023. As of March 31, 2023, the company’s cash and cash equivalents stood at $25.92 billion, compared to $21.88 billion as of December 31, 2022. Its total assets amounted to $369.49 billion, up from $365.26 billion as of December 31, 2022.
The consensus revenue estimate of $299.20 billion for the fiscal year ending December 2023 reflects a 5.8% year-over-year improvement. Likewise, the consensus EPS estimate of $5.31 for the current year indicates a 16.4% rise year-over-year. The stock has gained 25.4% year-to-date to close the last trading session at $111.75.
GOOGL’s robust fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
GOOGL has an A grade for Sentiment and a B for Quality. It is ranked #11 in the 57-stock Internet industry.
In addition to the POWR Ratings I’ve just highlighted, you can see GOOGL’s ratings for Growth, Value, Stability, and Momentum here.
Adobe Inc. (ADBE)
ADBE is a software company that provides products and services for content and experience creation, management, delivery, optimization, engagement, and transaction across different digital media formats. Its segments include Digital Media; Digital Experience; and Publishing & Advertising.
On March 21, ADBE and NVIDIA Corporation (NVDA) announced their partnership to co-develop advanced generative AI models that integrate into applications used by top creators and marketers. The collaboration aims to offer ADBE’s customers more creative options, increase work speed, and enhance content production scalability. This collaboration should bode well for the company.
For the first quarter that ended March 3, 2023, ADBE’s total revenue increased 9.2% year-over-year to $4.66 billion. Its non-GAAP operating income rose 6.9% from the year-ago value to $2.13 billion. Also, the company’s non-GAAP net income and EPS grew 9% and 12.8% year-over-year to $1.75 billion and $3.80, respectively.
Analysts expect ADBE’s revenue to increase 9.6% year-over-year to $19.30 billion for the fiscal year ending November 2023. The company’s EPS for the ongoing year is expected to rise 12.3% year-over-year to $15.40. Moreover, the company surpassed the consensus EPS estimates in all four trailing quarters.
Shares of ADBE have gained 4.3% over the past six months to close the last trading session at $344.02.
ADBE’s positive outlook is apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
ADBE has an A grade for Quality and a B for Sentiment. It has ranked #16 out of 135 stocks within the Software - Application industry.
Click here to access additional ADBE ratings for Value, Stability, Momentum, and Growth.
Baidu, Inc. (BIDU)
Headquartered in Beijing, China, BIDU provides internet search services in the country through its Baidu.com website. Its platform offers a Chinese language search engine that enables users to find online information such as webpages, news, images, documents, and multimedia files. Its segments include Baidu Core and iQIYI.
On May 4, it was reported that BIDU Research had developed a groundbreaking AI algorithm that considerably boosts the stability and antibody response of Covid-19 mRNA vaccines. Such algorithm designs could enhance BIDU’s AI capabilities and provide a competitive edge, increasing revenue through licensing or commercializing the technology.
Moreover, on March 16, BIDU launched ERNIE Bot, a next-generation large language model with impressive capabilities in Chinese language and culture comprehension, literary and business writing, mathematical calculations, and multi-modal content creation.
By leveraging cutting-edge technology to enhance its products and services, BIDU positions itself for sustained growth and profitability.
During the fourth quarter that ended December 31, 2022, BIDU’s non-GAAP operating income rose 50.8% year-over-year to $942 million. Its adjusted EBITDA grew 43% from the year-ago value to $1.19 billion. In addition, non-GAAP net income to BIDU grew 31.5% year-over-year to $779 million, while non-GAAP earnings per ADS came in at $2.21, up 31.5% from the prior year’s period.
The consensus revenue estimate of $19.61 billion for the fiscal year ending December 2023 indicates a 9.3% year-over-year improvement. Likewise, the consensus EPS estimate of $9.41 for the current year indicates a 10% year-over-year rise. Also, the company surpassed the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
Shares of BIDU have gained 38.1% over the past six months to close the last trading session at $118.90.
BIDU’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
BIDU has a B grade for Growth and Value. It has ranked #15 in the 46-stock China industry.
Click here to access additional BIDU ratings (Stability, Sentiment, Quality, and Momentum).
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GOOGL shares were trading at $117.37 per share on Thursday afternoon, up $5.62 (+5.03%). Year-to-date, GOOGL has gained 33.03%, versus a 8.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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