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RBC Capital: These 4 Stocks Can Win the AI Race

We are on the cusp of the Artificial intelligence (AI) era. Whether you like it not, the future is coming. Artificial Intelligence has gone from science fiction to the research labs and now into real life applications. And this will have very broad implications across a wide swath of industries (e.g. Internet, Autos, Banking, Software, Macro Economy, Health Care, and Utilities) over the next 5-10 years.

So which stocks should you be tracking now to get an investing edge on this major trend? Luckily RBC Capital Markets has just released a report that looks out to 2025 and imagines which companies will be winners of the Great AI Race.

The firm writes: “We have little doubt that the companies that are most successful in harnessing the power of AI will be those companies that likely have the most robust fundamental outlooks – and thus best potential stock performance in their respective verticals. Yes, AI is THAT much of a Change Force.” Indeed, in the words of Vladimir Putin, “The country that leads AI development will be ruler of the world.”

Here we dial down into 4 of the most promising of these AI stocks. We turn to TipRanks market data to source the stocks in the report with a “Strong Buy” top analyst consensus. This is based on all the stock’s ratings over the last three months. That means that these stocks are also promising investing opportunities right now. Let’s take a closer look:

1. Amazon (AMZN)

Amazon (AMZN – Research Report) is basically applying AI and machine learning to just about every part of its business. In fact, Amazon is estimated to spend 80% more than Alphabet on AI-related jobs! (At $228M vs $125M in 2017 according to Paysa). And as RBC Capital sees it, all this hard work is paying off.

“Overall, while it is still relatively early in the AI lifecycle, leaders are emerging quickly and we believe Amazon is one of them” says RBC Capital.

Here’s why: AI is primarily a prediction technology that gets better as more, relevant data and information is fed to the system. Not only does Amazon have the resources (~$30B in cash) to invest in AI stocks, but it also has the scale and the ability to generate large volumes of data.

In other words, Amazon’s global scale gives it a huge advantage in improving its own position using AI. This is through 1) retail sales growth; 2) Amazon Web Services (AWS) cloud sales growth; and 3) reduction in operating costs.

From a Street perspective, Amazon is currently a “strong buy” among artificial intelligence stocks, with juicy upside potential of 36%.

View AMZN Price Target & Analyst Ratings Detail

2. PaloAlto Networks (PANW)

AI is a pretty disruptive force when it comes to the world of cyber security.

One key company taking advantage of that fact is Palo Alto Networks (PANW – Research Report). “Within our software universe, we would highlight Palo Alto as a likely winner in the category [Security and AI/ machine learning]” says RBC Capital.

Notably, PANW’s WildFire uses machine learning to identify potential risks even if they have not been seen before. This groundbreaking product pulls thousands of features from each file comparing them to data of known threats to discover new malware and exploits.

RBC sums up “WildFire provides excellent visibility into the past and current threat landscape.”

Plus new AI developments are on the horizon for Palo Alto. The company has just snapped up Evident.io for $300M and RedLock for $173M. Combing the tech from these two acquisitions, PANW plans to launch a product in 2019 that takes AI to multi-cloud security analytics by correlating disparate data sets.

This is an artificial intelligence stock with a “strong buy” Street consensus and 51% upside potential.

View PANW Price Target & Analyst Ratings Detail

3. ServiceNow (NOW)

Shares in ServiceNow (NOW – Research Report) have surged over 200% in the last five years. So what could happen by 2025? Well the firm sees its Intelligent Automation Engine as “ushering in a new era of workplace productivity.” It wants to bring machine learning to your everyday work.

This essentially translates into using machine learning to accurately categorize and route tasks, prevent future issues and precisely predict performance metrics. Plus ServiceNow utilizes AI and ML techniques to increase automation and alert accuracy making sure that IT workers can focus on real problems and help avoid “alert fatigue.”

“This level of automation helps to make the most of human capital being able to process more tasks while ensuring the highest priority tasks are addressed promptly” says RBC Capital.

In total, eight out of nine polled analysts are bullish on this “strong buy” AI stock right now. And with an average analyst price target of $218, upside potential stands at 27%.

View NOW Price Target & Analyst Ratings Detail

4. Microsoft (MSFT)

This list wouldn’t be complete without Microsoft (MSFT – Research Report). Like GOOGL and AMZN, MSFT benefits from 1) massive amounts of raw compute power; 2) large data sets; and 3) ability to hire the smartest data scientists on the planet.

“We believe Microsoft is in an enviable position vs other public cloud competitors as their customers can also leverage AI and ML capabilities on premise, something [Amazon’s] AWS and [Google’s] GCP can’t deliver natively” points out RBC Capital.

It picks Microsoft as the Number 1 AI company in the public cloud space thanks to the company’s rapidly growing Azure cloud platform.

Alongside AI tools and infrastructure, AI-based Azure services include everything from Azure Bot Service specifically for bot development and Azure Machine Learning services that provides a preset library of algorithms to quickly create and deploy models all from the cloud.

Meanwhile, Microsoft’s AI School gives developers the tools they need to start building and implementing the tech into their own solutions.

Also in this stock’s favor is its very bullish outlook from the Street in general. With a “strong buy” consensus, 19 out of 20 top analysts rate Microsoft a “buy.” Its average analyst price target is currently at $125.

View MSFT Price Target & Analyst Ratings Detail

Enjoy Research Reports on the Stocks in this Article:

Amazon.com, Inc. (AMZN) Research Report

Microsoft Corp (MSFT) Research Report

ServiceNow Inc (NOW) Research Report

Palo Alto Networks, Inc (PANW) Research Report

You can find the right stock for your investment strategy, based on the latest ratings of top analysts. On TipRanks’ Most Recommended page, you’ll find the stocks that are hot with industry professionals. Amazon and Alibaba made that list. Want to see what else is there? Go to the Most Recommended stocks now.

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Harriet Lefton
Harriet Lefton, originally from the UK, began her career as a journalist specialising in the niche world of metal markets. She graduated from the University of Cambridge before becoming a qualified UK lawyer. Now she has turned her attention to the world of financial blogging, covering US stocks, analysts and all manner of things finance-related.

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