Best AI stocks to watch in December 2023

Artificial Intelligence (AI) has been the investing theme of 2023. The tech world has seemingly had enough of disruptive tech, cryptocurrency, Web3, Blockchain, and the Metaverse — and is ready to set its hopes on the next big thing.

While these former concepts may be on the backburner as the days of ultraloose monetary policy have ended, AI is becoming the clear driving force for big tech. Indeed, almost all of the S&P 500’s gains in 2023 have come from just seven companies, all of whom are potentially riding the AI wave to some degree.

There may be a difference between AI and the rest though. Artificial Intelligence is already in use across a wide variety of real-world applications, including in entertainment, social media, art, retail, security, sport analytics, manufacturing, self-driving cars, healthcare, and warehousing alongside dozens of other sectors.

Every Netflix recommendation, every supermarket rewards purchase, and every football match is analysed ever more relentlessly in order to provide more and better data. And while consumers have always understood — even peripherally — that AI was taking over more and more of the heavy lifting; the sector’s investment catalyst has finally arrived.

This catalyst is of course ChatGPT, the OpenAI-developed chatbot which garnered over 1 million users in just five days. It took Facebook 10 months, and Netflix three and a half years to hit the same milestone.

Taking the world by storm, it now boasts over 100 million users, and investors are now considering whether the innovation could make entire careers in areas such as copywriting, accounting, personal training, and even software development entirely redundant. Of course, OpenAI’s board has recently gone through some turmoil — with many analysts suspecting differences of ethics as models become ever more powerful.

From an investment perspective, interest rates are relatively high, and quantitative easing appears all but over for the foreseeable future. AI development is exceptionally expensive, and for every ChatGPT breakthrough, there are hundreds of costly failures.

Therefore, the best AI stocks could be predominantly the larger blue chips — which also helps to diversify any investment in the event that their AI projects fail. However, it’s also worth noting that some commentators consider the large US stocks are inside an AI bubble that will eventually pop.

And remember, past performance is not an indicator of future returns. While the following are the largest AI-focused companies stateside, Apple and several others are excluded because analysts disagree on whether they qualify as AI companies.

Best AI stocks to watch

1. Microsoft

Microsoft is the original global computing power, so it makes sense that the US behemoth tops the list of the best AI stocks to watch. The company already had a strong relationship with OpenAI prior to the ChatGPT launch and has invested $13 billion into the company since 2019.

This remains a symbiotic relationship — Microsoft is allowing OpenAI access to its cloud centres to increase ChatGPT’s computing power, while native search engine Bing has incorporated the chatbot into its functions in an attempt to steal Google’s overwhelmingly dominant market share.

With OpenAI still reportedly planning a $86 billion IPO after the return of CEO Sam Altman, Microsoft could also soon see a direct return on its investment.

Market Capitalisation: $2.84 trillion

2. Alphabet

Google parent Alphabet Inc may control 84% of the global search market share — but Yahoo was once king of search too. While Alphabet laid off thousands of employees in 2023, it’s launched its own rival chatbot — Bard — only to generate an embarrassing mistake at launch.

Bard runs on Google’s LaMDA programming, which has been in development since 2021. While there have been accusations of rushing Bard out to compete with ChatGPT, the titan should soon smooth out the issues.

It’s worth noting that AI is already used across many of Google’s current functions. And it’s got at least two more AI-focused projects; its coding-focused Generative Language API, and DeepMind which it acquired in 2014.

Market Capitalisation: $1.72 trillion

3. Nvidia

Nvidia is well-known as one of the world’s most valuable chipmakers, used in electronics ranging from smartphones, to cars, to high-end computing. Nvidia shares have risen by 235% year-to-date to $480, leaving the company with a sky-high price-to-equity ratio of 63 — and yet recent quarterly earnings saw yet another beat.

And Nvidia’s most advanced deep learning chips might mean that the NASDAQ company is still undervalued. They’re already in use at clients such as Alphabet and Facebook owner Meta to power both internal and user facing AI applications.

As AI becomes ever more mainstream, demand for these chips is surging, and importantly, there is a high economic barrier to entry — Nvidia has a wide economic moat surrounding its market position as the ‘bricks and mortar’ AI choice. Indeed, its chips are so advanced that they are subject to export controls in some instances from the US.

Market Capitalisation: $1.19 trillion

4. Tesla

Tesla is the original EV trailblazer, and despite the legal and media troubles of CEO Elon Musk, its advancements in artificial intelligence could see the auto company rise once again to the giddy highs of late 2021.

Indeed, its share price has already recovered by 124% year-to-date as it eyes possible expansions in India and Europe — though the recent catalyst is the Cybertruck launch, which could drive significant further growth through 2024.

Fully autonomous driving is the long-term goal, with the company planning to launch a robot taxi service soon. It’s also developing Optimus — a humanoid robot which Musk thinks could become more valuable than Tesla’s auto operations in time. However, economic slowdown in China could cause short-term profitability issues this year.

Market Capitalisation: $758 billion

5. IBM

IBM specialises in both hardware and software, providing AI-based services ranging from mainframe computing to nanotechnology. It’s also the largest industrial research firm in the world with 19 facilities — generating the most annual US patents every year between 1993 and 2021.

The company recently completed the installation of a 127-qubit quantum computing system at the University of Tokyo — the first ‘utility-scale’ quantum system in the region. And German biotech giant Boehringer Ingelheim has announced that it will harness IBM AI technology to supercharge its drug discovery efforts.

Further applications could be in the offing.

Market Capitalisation: $142 billion