AI Technology’s Economic Impact: Top Investment Picks Revealed
As the promises of artificial intelligence (AI) unfold, the technology has the potential to reshape economies worldwide. Whether the full extent of the anticipated transformation happens remains to be seen, but its economic impact is already undeniable. Notably, the International Monetary Fund estimates that AI could affect 40% of global employment and 60% in advanced economies, such as the U.S. Furthermore, PwC predicts AI will contribute approximately $15.7 trillion to the global economy by 2030.
However, involvement in AI does not guarantee a sound investment. Historical trends show that many companies once viewed as promising fail to thrive after technological shifts. Below are two favored AI investments for May and one to avoid.
Meta Platforms: Positioned for Success
Meta Platforms (NASDAQ: META) is uniquely equipped to leverage AI technology. Its extensive and engaged user base totals over 3.4 billion daily active users across its platform, marking a 6% increase year over year. This vast audience allows Meta to focus on enhancing AI features rather than building user engagement from the ground up.
Advertising remains Meta’s core revenue stream, accounting for 99% of earnings, and has grown at a double-digit pace for four of the last five years. The company is now incorporating AI to refine ad targeting and provide innovative tools to advertisers, leading to a 5% boost in conversion rates last quarter—an increase expected to grow as AI models advance.
Looking to the future, Meta envisions AI shaping human interaction with technology. The development of Meta Glasses as the “ideal form factor” for AI and a low-latency voice assistant could redefine how users engage with devices, potentially making smart glasses a necessity.
Currently, Meta’s stock trades at 23 times its earnings, which, although not cheap, remains competitive among major tech companies.
Image source: Getty Images.
Nvidia: The Leading AI Chip Supplier
Nvidia (NASDAQ: NVDA) holds a dominant position in the AI GPU market. The company’s robust chip sales and ongoing demand have bolstered its margins, which hover around the mid-50s. Nvidia’s chips outperform those of its closest competitors, and its healthy free cash flow allows for substantial investment in research and development.
On the software front, Nvidia’s CUDA platform is a critical asset. It enables developers to utilize GPUs for advanced tasks beyond graphics. CUDA’s predominance in AI software makes it costly and complicated for users to switch to competing technologies, reinforcing client loyalty and underscoring Nvidia’s stronghold in the AI chip sector.
Despite upcoming challenges, Nvidia has consistently demonstrated its ability to innovate. Currently trading at one of its lowest price-to-earnings ratios in years, it remains a solid investment option.
Palantir: High Potential but Overvalued
Palantir Technologies (NASDAQ: PLTR) stands as a leading provider of AI-powered analytics and intelligence solutions. With a strong track record of double-digit growth and rising margins, the company enjoys high demand for its offerings.
However, the stock is notably expensive, boasting a price-to-earnings ratio nearing 500. This figure far exceeds that of Nvidia, which is experiencing faster growth in both revenue and profits. Consequently, Palantir’s current valuation appears unsustainable. Investors should consider avoiding its stock until a significant price correction occurs.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
