Are these the best AI stocks to watch in June 2024?

The artificial intelligence (AI) boom — which started in late 2022 with the release of OpenAI’s groundbreaking ChatGPT — may be showing signs of consolidation. While 2023 was hallmarked as a year of exuberant growth, the largest US companies are perhaps due a pullback in 2024.

AI factors to consider

Of course, AI advances over the past couple of years have been simply staggering — with companies of all sizes implementing the new tech into their corporate strategies — with a particular focus on generative AI. And from images to film, AI is being rolled out on a mass scale, with access freely available to the general public.

Indeed, perhaps the most telling development came during the months-long SAG-AFRTA strike against AMPTP, which when combined with the Writers Guild of America strike, cost 45,000 jobs and an estimated $6.5 billion loss to the Southern California economy.

A key component of the strike, which lasted from July to November 2023, was demands to create a compromise over the use of AI and digital recreation of actors.

Much of the financial success of AI has been directed towards the ‘magnificent seven,’ but this may be changing. Nvidia’s roaring success as the poster child of the AI revolution was recently checked by a one-day 10% drop, though it has since recovered to $887. All eyes are watching for its upcoming earnings.

For context, popular AI shares including Super Micro Computer, Palantir, ARM and AMD have all seen similar volatility. And it remains to be seen whether this is the end of the bubble or simply some profit taking before a sustained move higher.

Another key factor to consider is upcoming legislation to regulate AI development. For example, New York City recently implemented a new law to regulate AI for use in hiring employees. This could be the first of many — creating risks and opportunities for individual AI shares.

Best AI stocks to watch

There is some disagreement on what constitutes an AI stock — and whether it must be the main focus of a company or simply be a significant growth area. Here we have listed the top AI stocks in the US based on companies where AI is a growth area and ordered by market capitalisation.

1. Microsoft
2. Apple
3. Nvidia
4. Alphabet
5. Amazon

Microsoft

Microsoft remains the original global computing power, so it makes sense that the US behemoth tops the list of the best AI stocks to watch — and is now the most valuable company in the world. The business retains a close relationship with OpenAI prior to the famous ChatGPT launch and has invested billions into the company since 2019.

In Q3 results, revenue increased by 17% year-over-year to $61.9 billion, driving operating income up by 23% to $27.6 billion. Chairman and CEO Satya Nadella enthused that ‘Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry.’

Copilot is marketed as a conversational chat interface that lets you search for specific information, generate text such as emails and summaries, and create images based on text prompts you write.

Market capitalisation: $3 trillion

Apple

Apple is in the middle of a market struggle — independent research firm Counterpoint estimates that iPhone sales in key market China fell by 19% in the March quarter — the worst performance since covid-19 struck in 2020.

In Q2 results to 30 March 2024, Apple saw revenue fall by 4% year-over-year to $90.8 billion with earnings per diluted share of $1.53. While revenue did beat analyst expectations, iPhone revenue was down by 10% to $46 billion, as the company suffered increased competition from Huawei and Samsung.

CEO Tim Cook notes that there was an ‘all-time revenue record in Services’ and was ‘thrilled to launch Apple Vision Pro and to show the world the potential that spatial computing unlocks. We’re also looking forward to an exciting product announcement next week and an incredible Worldwide Developers Conference next month.’

Market capitalisation: $2.8 trillion

Nvidia

Nvidia is arguably the prime beneficiary of the AI boom, with a wide economic moat as the ‘picks and shovels’ stock for the artificial intelligence age.

Nvidia CEO and founder Jensen Huang recently enthused that ‘accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations…NVIDIA RTX, introduced less than six years ago, is now a massive PC platform for generative AI, enjoyed by 100 million gamers and creators.’

However, clouds may be gathering on the horizon. Super Micro Computer is deeply tied to Nvidia as it makes the titan’s servers — and the Super Mico's own results were mixed. Although revenue rose sharply, it missed analyst estimates.

Nvidia reports Q1 results on 22 May.

Market capitalisation: $2.2 trillion

Alphabet

Alphabet is the owner of both Google and YouTube, including Google Cloud. In recent quarterly results, revenue surged above estimates to $80.54 billion, while total advertising sales increased from $54.55 billion in the same quarter a year before to some $61.66 billion.

The increased ad sales bodes well for Alphabet, as this critical revenue generator had previously struggled through 2023, with rising interest rates and higher inflation reducing corporate spending on marketing.

Importantly, operating income at the cloud business more than quadrupled to $900 million, and it is continuing to invest in AI features, including within Google search.

CEO Sundar Pichai noted that ‘our leadership in AI research and infrastructure, and our global product footprint, position us well for the next wave of AI innovation.’

Market capitalisation: $2.1 trillion

Amazon

Amazon is well-known as the largest e-commerce retailer in the world, but the company is also a growing operator in the AI space. It offers several cutting-edge AI tools within its AWS business, including Code Whisperer and SageMaker — and clients can customise Amazon’s own machine learning model.

Of course, competitors have their owns services, but Amazon is by far the largest cloud computing company, with circa a third of the global market share. Within its e-commerce offering, Amazon uses AI to identify consumer trends, manage inventory and also make personalised product recommendations — including targeted advertising.

In Q1 results, net sales rose by 13% to $143.3 billion excluding the impact of forex rates. President and CEO Andy Jassy enthused that ‘the combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate (now at a $100 billion annual revenue run rate).’

Market capitalisation: $1.9 trillion

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