A recent report by UBS Global Wealth Management estimates that artificial intelligence revenue will reach $1.2 trillion by 2027. Analysts believe that “AI will be one of the most profound innovations and biggest investment opportunities in human history.”
The report breaks down the investment opportunity into three layers: (1) the execution layer, (2) the insight layer, and (3) the application layer. Listed below are three smart AI stocks (one for each tier) that billionaires bought in the second quarter.
-
Andreas Halvorsen of Viking Global Investors bought 1.3 million shares Nvidia (NASDAQ: NVDA ).
-
Ken Griffin bought 1.1 million shares at Citadel Advisors Amazon (NASDAQ: AMZN ).
-
DE Shaw & Co. In David Shaw bought 689,000 shares Datalog (NASDAQ: DDOG ).
Here’s what investors should do about those stocks.
1. Nvidia: Implementation layer
UBS analysts define the first phase Artificial intelligence (AI) boom as an implementation layer. It includes Semiconductor companies and public clouds that provide the infrastructure and platform services needed to build AI applications. UBS estimates that total revenue through the activation layer will be $516 billion by 2027.
Nvidia fits this category neatly. The most obvious reason for its inclusion is its dominance in data center graphics processing units (GPUs). Nvidia accounted for 98% of data center GPU shipments last year, and it has a 90% market share in AI chips. Morgan Stanley Inspector Joseph Moore. Forrester Research recently wrote, “Without Nvidia’s GPUs, modern AI wouldn’t be possible.”
Through its CUDA platform, Nvidia provides software libraries and developer tools that streamline the development of GPU-accelerated applications. In addition, the company has also launched a complete AI-aa-service product called DGX Cloud. It brings together supercomputing infrastructure, pre-trained machine learning models, and software to support AI application development in use cases ranging from autonomous robots to recommendation systems.
Looking ahead, Nvidia is well positioned to maintain its leadership position in AI chips despite increasingly stiff competition from semiconductor companies such as AMD And Broadcom. To quote Forrester Research, “The company’s innovation, roadmap and vision are clear, and it’s moving at light speed compared to other semiconductor manufacturers for AI chips.”
Wall Street expects Nvidia’s earnings to grow 37% annually over the next three years. That consensus sees a current valuation of 57 times earnings as a reasonable entry point. Those figures yield a PEG ratio of 1.5, a material discount to the three-year average of 3.1.
2. Amazon: The Intelligence Layer
UBS researchers define the second stage of artificial intelligence development as the intelligence layer. This includes companies that use data assets to build large language models (LLMs) and machine learning models that drive artificial intelligence applications. UBS estimates that total intelligence revenue will reach $255 billion by 2027.
Amazon fits neatly into the first and second categories. Amazon Web Services, the largest public cloud by revenue, provides access to infrastructure and platform services that support the development of AI models and applications. Amazon Bedrock is an example. A generative AI development platform that allows businesses to better design pre-trained models, including the Titan family of models created by Amazon.
Additionally, Amazon shoppers spend $443,000 per minute on the marketplace Goldman Sachs. This gives the company a deep understanding of consumer tastes and preferences, and its AI shopping assistant (Rufus) uses that information to answer questions and make product recommendations. Starting September 18, Rufus is officially available to all US customers.
According to a recent survey of IT executives by Goldman Sachs, roughly 30% of applications run on public clouds today, but that number is predicted to approach 50% in three years. As the largest public cloud, Amazon Web Services is uniquely positioned to benefit from the growing demand for AI services, as it already has the largest customer base and partner ecosystem.
Wall Street expects Amazon’s earnings to grow 22% annually over the next three years, making its current estimate of 45 times earnings reasonable. Those figures yield a PEG ratio of 2.1, a discount to the three-year average of 2.9.
3. Datadock: Application layer
UBS analysts define the third phase of the artificial intelligence boom as the application layer. It consists of companies using data assets and models from the intelligence layer to build AI software. UBS estimates that total revenue from the application layer will reach $395 billion by 2027.
Datadock fits into this category. The company specializes in surveillance software. Its platform includes a wide range of products that help businesses monitor, troubleshoot and evaluate the performance of critical IT infrastructure and applications. Many products are based on AI. For example, Watchdog is an AI engine that accelerates incident resolution by automating anomaly detection and root cause analysis.
Similarly, Bits AI is a conversational interface that allows development and operations teams to query observational data using natural language. It simplifies investigations, streamlines incident management and accelerates resolution of performance issues. Likewise, LLM Observation is an observation tool designed for large language models that create AI applications.
Research institute Gardner recently ranked Datadog as the leading monitoring platform vendor for the fourth year in a row. The company also has a strong presence in several individual monitoring verticals such as log analytics, disconnection monitoring and application performance monitoring. Additionally, Forrester Research has recognized its leadership in AI for IT operations.
Morgan Stanley analyst Sanjit Singh considers Datadock one of the best software companies to monetize AI. Wall Street expects the company’s revenue to grow 23% annually through 2026. This makes the current valuation of 17.9 times sales a reasonable entry point for patient investors.
Should you invest $1,000 in Nvidia right now?
Before buying stock in Nvidia, consider this:
The Motley Fool Stock Advisor The research team identified what they believe 10 Best Stocks Investors can buy now… and Nvidia isn’t one of them. Top 10 stocks that can generate huge returns for years to come.
Consider when Nvidia Made this list on April 15, 2005… If you invested $1,000 during our referral, You will have $743,952!*
Stock Advisor Guidance on building a portfolio provides investors with an easy-to-follow roadmap for success, including regular updates from analysts and two new stock picks each month. The Stock Advisor Service is available More than four times The S&P 500 has rebounded since 2002*.
*Stock Advisor returns on September 23, 2024
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Trevor Jennywine Holds positions at Amazon and Nvidia. The Motley Fool owns and recommends positions in Advanced Micro Devices, Amazon, Datadog, Goldman Sachs Group and Nvidia. The Motley Fool recommends Broadcom and Gartner. A motley fool Disclosure Policy.
3 Smart AI Stocks Billionaires Are Buying for 3 Stages of Artificial Intelligence Development Originally Posted by The Motley Fool
2024-09-29 13:33:00