These high-growth AI stocks have strong potential in this volatile market
- If the economy begins to recover in the second half of this year, it will be bullish for these high-growth AI stocks.
- Microsoft (MSFT): The company’s head start in AI puts it in prime position to take advantage of the growth across many areas of the AI sector.
- The Trade Desk (TTD): The company’s leadership in AI for advertising in the connected TV space is likely to accelerate along with ad spending.
- Upstart (UPST): If you’ve got a contrarian streak, you may appreciate the opportunity that comes from the way this online lender uses AI to help avoid loan losses.
Love it or hate it, whether you see it as friend or foe, artificial intelligence (AI) is rapidly expanding. I say expanding because AI has been in use for years. And few consumers and businesses would deny that AI has been, on balance, a worthwhile innovation. But generative AI has put a white-hot spotlight on how fast this technology is evolving. That’s why it’s time to look for high-growth AI stocks.
Not surprisingly, artificial intelligence is the new equity bubble. Any company that is remotely linked to AI is seeing strong support. And the rally is broad-based, with small-cap stocks getting a lift right along with the big tech stocks.
But even AI can’t offset all of the macroeconomic headwinds that weigh on the economy. The banking sector is still beset by uncertainty, inflation is sticky and interest rates, while maybe not going up, are not coming down in the next few months.
All of this may mean that stocks could have a difficult summer. But if economic forecasts are correct, conditions may improve in the second half of the year. In fact, many analysts still believe the Fed will be cutting interest rates before the end of the year. An improving economy will be bullish for stocks in general, particularly AI stocks. Here are three of the best AI stocks for you to consider.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) stock is up 29% as of May 5, 2023. So it may seem like the tech giant’s stock is more likely to pull back than it is to have a huge upside. This may be a situation where both sentiments can be true.
An uncertain macroeconomic outlook could have stocks testing October 2022 lows. If it does, investors should start buying one of the truly high-growth AI stocks with gusto.
Microsoft has a sizable lead in the AI sector. This is largely due to its investment in OpenAI, the creator of ChatGPT. The company is using this investment to apply generative AI to a number of its products and services. An obvious example is in its Bing search engine, which is eating into Google’s dominance in the sector after just a few months.
One of the latest examples is the company’s launch of its Microsoft Dynamics 365 Copilot, which is the first of its kind in both CRM and ERP, which “brings next-generation AI to every line of business.”
Continued innovation means the stock should continue to generate strong revenue and earnings. Plus, investors are likely due for a dividend increase later this year. Those are great reasons to consider MSFT stock among the best AI stocks in 2022.
The Trade Desk (TTD)
The Trade Desk (NASDAQ:TTD). The company is a leader in the adtech sector. And that sector is expected to grow at a 14% annual rate between now and 2030.
Artificial intelligence has been transforming adtech for some time. The Trade Desk stands out among competitors like Meta Platforms (NASDAQ:META) and Alphabet (NASDAQ:GOOG, GOOGL) because it embraces the open internet as opposed to the “walled garden” approach of Meta and Google.
The company posted record quarterly revenue of $491 million when it issued its fourth quarter 2022 earnings report in February. That was a 24% increase from the same quarter in 2021. Even more impressively in this environment, the company’s full-year revenue was 32% higher than in 2021.
And The Trade Desk isn’t resting on those bullish laurels. It just launched Galileo, its “all-in-one CRM data solution for the open internet.” This should allow it to continue entrenching its relationships with its core customers.
Historically, the first and second quarters are the company’s weakest in terms of revenue. That trend should continue. However, analysts are projecting both quarters to be higher year-over-year. That suggests that current estimates for earnings growth could be raised over time. And so may the TTD stock price.
Upstart (UPST)
When you’re thinking about high-growth AI stocks with a contrarian eye, Upstart (NASDAQ:UPST) may be a compelling option. Credit is tightening for both businesses and consumers. And in the last quarter, Upstart reported lending volume that was down 14% from the prior year. That was reflected in the company’s revenue and earnings, which both fell sharply year-over-year.
But the silver lining is that the company beat expectations on both the top and bottom lines. And the reason for that can be found in the company’s business model. Upstart was an early adopter of AI and uses it to look beyond a credit score when deciding eligibility.
As a result, the company’s lending has outperformed lenders who rely on the traditional FICO standard. In that regard, I agree with my InvestorPlace colleague, Omor Ibne Ehsan. That is, the company’s current weakness is rooted in the banking sector. If the Federal Reserve does indeed begin lowering rates, or even if it just pauses for an extended time, lending may improve, which would be bullish for UPST stock.
This post originally appeared at InvestorPlace.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
