The Nasdaq, propelled partially by optimism about artificial intelligence (AI), is already in a bull market, as the index had soared 25% so far this year. The S&P 500, which is on the verge of a bull market as well, has also benefitted from investor enthusiasm related to the technology. So, today, we’re going to look at the best stocks for an AI-powered market.
Rather than chase stocks with sky-high valuations, such as Nvidia (NASDAQ:NVDA) and C3.ai (NYSE:AI), the best AI stocks to buy for a bull market are top-notch names that the Street has not yet or just recently started to embrace.
So, without further ado, here are the top stocks for an AI bull market.
Intel (INTC)
While some chipmakers such as Nvidia have run up sharply on the promise of AI, Intel (NASDAQ:INTC) has largely been left behind. However, recent comments by Nvidia Chief Executive Officer (CEO) Jensen Huang suggest that Intel may become a key Nvidia partner and benefit greatly from Nvidia’s prowess in AI.
“We’re open to manufacturing with Intel… and we’ve recently received the test chip results of [Intel’s] next generation process, and the results look good,” Huang said.
Intel is focused on expanding its manufacturing capacity. To this end, the company is building two chip factories in Arizona. In addition, the company began construction on a $20 billion semiconductor manufacturing site in Ohio in September.
Meanwhile, as I’ve reported previously, the company’s Gaudi chips look poised to enable a great deal of generative AI, boosting revenue and profits from data centers over the long term.
“We’re seeing a very positive response to Gaudi 2 and seeing our pipeline growing very rapidly for that product line,” said Intel CEO Pat Gelsinger on the company’s Q1 earnings call in April.
Based on analysts’ average 2024 earnings estimate, INTC stock is trading at a price-earnings ratio of 17.8 compared with 38.4 for NVDA.
Lemonade (LMND)
Lemonade (NASDAQ:LMND) is an insurance company that extensively utilizes AI to price its offerings and interact with its customers. In a recent letter to its shareholders, the insurer reported that it had identified “100 business processes that generative AI can automate and
improve,” predicting these changes will significantly reduce its costs over the longer term.
The company’s strategy of using AI to make itself more attractive to millennials appears to be paying off. In the first quarter, revenue soared an incredible 115% year over year to $95.2 million, while adjusted EBITDA saw an 11% improvement. In-force premiums increased 56% from a year ago to more than $653 million. And its customer count climbed 23% versus the same period a year earlier to 1.86 million.
Finally, as Seeking Alpha’s Gary Alexander points out, the company is poised to benefit from interest rate increases and cross-selling opportunities.
LMND stock is changing hands for a reasonable 2.7 times 2024 sales estimates.
Medtronic (MDT)
Medical device maker Medtronic (NASDAQ:MDT) is utilizing AI in multiple aspects of its business. For example, the company is using the technology to predict outcomes for spinal surgeries, identify pre-cancerous tissue and determine the amount of insulin that diabetic patients require.
And, as I’ve noted in previous columns, Medtronic has launched “a robot that helps perform surgeries” using artificial intelligence. Speaking to an analyst earlier this year, CFO Karen Parkhill said the robot is “going to be a strong contributor to our revenue growth for many years to come.”
Investment bank Bernstein recently expressed optimism about Medtronic’s chances of reporting strong results next year, and it maintained an “outperform” rating on the stock.
Shares currently trade with a forward price-earnings ratio of 15.4, but this discount may not last long.
As of the date of publication, Larry Ramer owned shares of INTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.