In 2023, AI stocks have surged, but some should be left alone.
This year, the stock market has experienced a phenomenal recovery. The Nasdaq Composite recently put forth its greatest first half since 1983 after experiencing its worst performance in more than a decade.
The recent development of the next generation of artificial intelligence (AI) technology, which has the promise of enormous productivity increases, is assisting in fueling the tech boom. Nobody is exactly sure how this will finally pan out in the market, though.
By 2030, according to Goldman Sachs and Morgan Stanley’s conservative projections, there will be opportunities worth $6 trillion and $7 trillion, respectively. By the end of the decade, AI-related hardware and software might create a $14 trillion revenue opportunity, according to Cathie Wood’s Ark Investment Management.
Investors are snatching up shares in the stocks most likely to participate in the AI revolution due to the substantial potential for profit that results from these productivity gains. Others are much riskier while some are well-positioned for gains.
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Microsoft: Supporting the growth of AI
The most well-known products from Microsoft (MSFT 2.31%) include the widely used Windows operating system, the Office productivity suite, and the Azure cloud infrastructure service.
However, the business is also partly to blame for the current AI boom because it made an early $13 billion investment in OpenAI, the firm that owns ChatGPT, and because it intends to use AI technology. Microsoft has detailed comprehensive plans to implement AI throughout its enormous software empire.
Microsoft shared information regarding AI-driven offerings and the cost to users at its recent Inspire event. The new Microsoft 365 Copilot from the corporation is tightly connected with all of its services and products, including emails, chats, documents, calendars, and the cloud.
Copilot may boost productivity by creating PowerPoint presentations, prioritizing emails, drafting initial responses to emails and chats, summarizing meetings on Teams, and more. Microsoft’s intentions to charge $30 per user each month for Copilot also caused a stir. According to Wedbush analyst Dan Ives, this initiative may increase Microsoft’s cloud revenue by 20% by 2025.
Furthermore, thanks to its lengthy and reliable history of dividend payments, Microsoft brings a level of stability to the table. Since fiscal 2004, the company has boosted its dividend by 750%, and in the past 20 years, it has never missed a payment.
Although its yield of 0.78% might appear very meager, that is a result of the stock price’s upward trend, which has seen a 993% gain in the past 10 years. Gains in stock price and consistent dividend payments make a winning combination.
Microsoft’s continuous financial success, which persisted even while the economy recovered from the slump, is what’s driving that increase. Microsoft’s fourth quarter of fiscal 2023, which concluded on June 30, had a 10% gain in constant currency in revenue and a 23% increase in net income.
This serves to demonstrate that Microsoft still has a significant amount of room for growth even with a market cap of more than $2.5 trillion.
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BigBear.ai: It’s in the bears’ hands
It is understandable that investors could be drawn to BigBear.ai (BBAI 6.86%) given the current rush to cash in on the AI revolution and especially given its name. The business offers AI and machine learning solutions to aid in decision-making, as well as intelligence analysis to the government, industry, and the healthcare sector. By detecting issues with supply chains and logistics processes, the organization employs digital mockups to optimize operations.
Investors are rushing to buy shares because of the AI connection, but a closer check reveals that this enthusiasm may not be warranted. BigBear.ai ought to be expanding like wildfire given the enormous possibility and its market cap of only $267 million, but that isn’t the case.
Revenue increased by 16% year over year to $42 million in the first quarter, resulting in a net loss of $26 million and a loss per share that increased from $0.14 to $0.19. To make matters worse, BigBear.ai keeps losing money with no sign of stopping.
The stock price of BigBear.ai has increased by 179% so far this year as a result of the influx of investors, but the company’s performance hasn’t kept pace. Additionally, the management is projecting revenue growth of less than 5% for the entire year, which scarcely supports the stock’s sharp increase.
It doesn’t seem good for the company’s future success if that is the most it can offer in the middle of a wild push to AI.
So I would stay away from BigBear.Avoid ai at all costs.
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