5 US-Listed Companies that Could Potentially Benefit from the Artificial Intelligence (AI) Boom
There are countless of discussions going on these days about the use of Artificial Intelligence, or AI for short – 2 names that appear in the news these days are that of ChatGPT (developed by OpenAI, and recently, Microsoft Corporation acquired a stake in the chatbot), along with “Bard” (developed by Alphabet Inc., where it was in the news for a “not so good” reason in that it made a factual error in its first demo.)
This post was originally posted here. The writer, Jun Yuan Lim is a veteran community member and blogger on InvestingNote, with a username known as @ljunyuan and has close to 2100 followers.
However, way before ChatGPT and Bard came into picture, artificial intelligence have already been used by companies to increase the efficiency in their operations – one of them include “chatbots” found in the various government agency websites to provide help for site visitors; another one is an automated call system implemented by the banks where some of the mundane tasks (such as requests for fee waiver, along with approval/decline on the spot) are performed.
In this post, you’ll find 5 US-listed companies that could potentially benefit from the AI boom, and how.
Before I begin, please note that they are not recommendations to buy any of the companies listed below. Rather, they provide a starting point for you to do an in-depth analysis on (the individual companies) and understand more about each of them before you make your investment decision.
1. Alphabet Inc. (NASDAQ:GOOG [$GOOG], NASDAQ:GOOGL [$GOOGL])
Mention Alphabet Inc., and its chatbot “Bard” comes to mind. Despite it being in the news for the wrong reasons recently (where it made a factual error in its first demo), but in my opinion, it is nothing more than just one of the “teething problems” any new tech features will have. I expect the management to improve on it, and in time to come, rival ChatGPT (or in fact be even better than it.)
Apart from “Bard”, the tech company can also make use of AI to deliver more personalised and relevant ads to users, and in so doing, improve on its ad income. This is on top of further technologies that it will release in the future, which can contribute to its revenue positively.
Alphabet Inc.’s over the years have grown positively as well – between FY2015 and FY2022 (a period of 8 financial years), its total revenue went up from US$74,989m in FY2015 to a high of US$282,836m in FY2022 – and recording a compound annual growth rate (CAGR) of 18.1%, while its net profit in the same time period improved from US$15,826m to US$59,972m – and recording a CAGR of 18.1% as well.
However, the company does not pay out any dividends to its shareholders.
2. NVIDIA Corporation (NADAQ:NVDA [$NVDA])
Starting with a focus on PC graphics (most of our computer’s graphics card is by the NASDAQ-listed company), NVIDIA Corporation later leveraged on its GPU (Graphics Processing Unit, a type of processor designed to handle complex computations required for rendering images, animations, and video) architecture to create platforms for virtual reality, high performance computing, and artificial intelligence. Currently, it is one of the leading GPU manufacturers in the world.
That said, the tech company is definitely one that will benefit from the AI boom with the increase in demand for its GPUs – which are designed specifically for AI and deep learning workloads. Its GPUs are also used in data centres for AI workloads (and with the proliferation of data centres, NVIDIA will benefit from this), as well as in automotive (where the company develops and deploys AI systems for self-driving vehicles – with demand for such vehicles set to rise in the years ahead, NVIDA will benefit from it.)
Revenue and net profit over the past 8-years have grown steadily – for the former, it went up from $4,682m in FY2015 to a high of $26,914m in FY2022, a CAGR of 24.4%; for the latter, it improved from $631m in FY2015 to $9,752m in FY2022, a CAGR of a very impressive 40.8%.
The company also pays out a dividend once every quarter, and dividend payouts have also grown from 9.0 cents/share in FY2015 to 16.0 cents/share in FY2022 – a CAGR of 8.2%.
At its current traded price of $213.88 (at close on 17 Feb 2023), and a dividend payout of 16.0 cents/share in FY2022, it represents a yield of 0.07%.
3. Amazon.com Inc. (NASDAQ:AMZN [$AMZN])
The tech giant have made significant investments in AI over the years. One of the products by the company that makes extensive use of AI is its “Alexa” voice assistant – where it makes use of AI to understand natural language and respond to user requests.
Apart from that, the company can also make use of AI to analyse customer data and provide more personalised recommendations for products on its online shopping platforms (and this can help to increase sales, and in turn, its revenue), and at the same time, detect and stop potential fraud right in its tracks (including but not limited to fake reviews, counterfeit products, and unauthorised transactions.)
Financial performances over the years have been very stable as well – with its revenue growing from $107,006m in FY2015 to a high of $513,983m in FY2022, a CAGR of 21.7%. For its net profit, it has managed to record a steady rise from a low of $596m in FY2015 to a high of $33,364m in FY2021, before sinking into a net loss of -$2,722m in FY2022 (due to a pre-tax valuation loss of $12.7bn from its common stock investment in Rivian Automotive Inc.)
Finally, the tech company does not pay out any dividends to its shareholders.
4. Microsoft Corporation (NASAQ:MSFT [$MSFT])
The tech company have recently announced its $10bn investment in ChatGPT – a chatbot developed by OpenAI that makes use of the GPT (Generative Pre-trained Transformer) architecture to generate coherent and appropriate responses to text-based prompts. The chatbot has been in the news for how people make use of it to conduct researches, along with concerns surrounding possible plagiarism by students, who may make use of responses produced by the chatbot for their assignments.
In the future, I foresee Microsoft to incorporate features of AI into its Windows operating system, as well as its Microsoft 365 suite of products to better user experiences. On top of that, they can also make use of AI to analyse customer data and behaviour to identify trends and anticipate customer needs, allowing them to develop products and/or services to cater to them.
Microsoft Inc.’s financial performances over the years have grown steadily as well, with its revenue improving from $93,580 in FY2015 to $198,270m in FY2022 – a CAGR of 9.8% over a 8-year period. In the same time period, its net profit have also went up from $12,193m to $72,738m, recording a CAGR of 25.0%.
The management of Microsoft Inc. declares a dividend payout on a quarterly basis – between FY2015 and FY2022 (a period of 8 years), its dividend have improved from $1.24/share to $2.48/share – a CAGR of 9.1% (pretty much in-line with its revenue growth.)
At its current traded price of $258.06 (as at market close on 17 Feb 2023), and a dividend payout of $2.48/share in FY2022, this represents a yield of 1.0%.
5. International Business Machines (IBM) (NYSE:IBM [$IBM])
Finally, we have International Business Machines, or IBM as we are all familiar with – it’s another name which you should be familiar with for its catalogue of IT products, including its namesake brand of personal computers in the past (but they have since sold this business to Lenovo in 2005.)
Today, the company is focused on helping clients leverage the power of hybrid cloud and AI to support their digital transformations and help them engage with their customers in new ways. That said, the company is definitely one of the key beneficiaries of the “AI boom.”
On thing to note about the company, however, is its declining revenue in recent years – where it fell from a high of $79,591m in FY2018 to a low of $57,350m in FY2021, before bouncing back to $60,530m in FY2022. The company’s net profit have also fluctuated in the same time period, between a high of $9,431m in FY2019 to a low of just $1,639m in FY2022.
Despite of its irregular financial performances, its dividend payout over the same time period (between FY2018 and FY2022) have grown steadily – from a payout of $6.21/share in FY2018, it has grown to $6.59/share in FY2022, and this represents a CAGR of 1.2% over the past 5 years. Another thing to highlight is that the management of IBM declares a dividend payout on a quarterly basis.
At its current traded price of $135.02 (as at market close on 17 Feb 2023), and a dividend payout of $6.59/share in FY2022, it represents a yield of 4.9%.
Disclaimer: At the time of writing, I am a shareholder of Alphabet Inc., and Amazon.com Inc.
Once again, this article is a guest post and was originally posted on ljunyuan‘s profile on InvestingNote.
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