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

2023 was inarguably the year of AI — as the big NASDAQ tech stocks experienced huge surges in market capitalisation — backed by hopes that artificial intelligence progress, in particular in generative AI, could displace current models of working.

These so-called ‘magnificent seven’ have driven much of the gains in the US market, with market darling Nvidia rising to $950 per share in March. However, the company has since corrected to $824, recently suffering a 10% one-day fall as investors weigh up the relative risks and rewards.

AI in 2024

While AI is undoubtedly filtering into ever more aspects of daily life and work environments, new tech has a history of inspiring market bubbles which pop before the winners go on to generate sustainable growth. This was arguably the case with the dot-com crash — and while no two scenarios are exactly the same, history does tend to rhyme.

On the other hand, the AI advances of the last 18 months have been extraordinary — with artificially generated text, imagery and video available to the masses on a scale never before seen.

There are even rumours that OpenAI has developed a model approximating Artificial General Intelligence (AGI) — capable of surpassing human-like intelligence with the ability to self-teach. And then there’s the employee question: many companies are already laying off staff in favour of AI-based replacements, and this trend could be set to continue.

With some disquiet not just at Nvidia, but other popular shares including Super Micro Computer, Palantir, ARM and AMD, it remains to be seen whether this is the end of the bubble or simply some profit taking before a sustained move higher.

As ever, while there may be significant growth opportunities, there are also risks. Past performance is not an indicator of future returns.

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. Amazon
5. Meta Platforms

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 Q2 results, revenue increased by 18% year-over-year to $62 billion, while net income rose by 33% to $21.9 billion. CEO Satya Nadella enthused that ‘we’ve moved from talking about AI to applying AI at scale. By infusing AI across every layer of our tech stack, we’re winning new customers and helping drive new benefits and productivity gains across every sector.’

In upcoming earnings, two metrics will be closely watched: revenue derived from Azure and related services — which rose by 30% in Q2, including 6% from AI — and revenue from the company’s Microsoft 365 Copilot AI tool, as Q3 will be the first full quarter of sales.

Arguably, the two are key bellwethers for AI sentiment.

Market Capitalisation: $3.03 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.

But in Q1 results, Apple saw revenue rise by 2% year-over-year to $119.6 billion, while quarterly earnings per diluted share increased by 16% to $2.18. CEO Tim Cook noted the company’s ‘all-time revenue record in Services’ and also enthused that the company’s ‘installed base of active devices has now surpassed 2.2 billion, reaching an all-time high across all products and geographic segments.’

The focus of upcoming results may be on new product launches, including new iPads on 7 May and iOS 18, which is rumoured to host artificial intelligence capacity entirely offline on customer iPhones.

Market Capitalisation: $2.58 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.

In Q4 2024 results, the company saw revenue rise by 265% year-over-year and 22% quarter-on-quarter to a record $22.1 billion, driven by Data Centre revenue which increased by 409% in the year to $18.4 billion.

CEO and founder Jensen Huang enthuses 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. The 10% one-day drop mentioned above was potentially caused by Super Micro Computers failing to preannounce positive Q3 results as it had last quarter — the business is deeply tied to Nvidia as it makes the titan’s servers.

Market Capitalisation: $2.06 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. Total Q4 net sales increased by 14% year-over-year to $170 billion.

Within its e-commerce offering, Amazon uses AI to identify consumer trends, manage inventory and also make personalised product recommendations — including targeted advertising. Then there’s the smart devices, including Alexa and the Fire tablets. CEO Andy Jassy enthuses that the AI opportunity will be ‘tens of billions of dollars of revenue for AWS over the next several years.’

Positively, Bank of America analysts consider that next week’s earnings will see Amazon Web Services and its advertising segment come in on the upside of Wall Street guidance.

Market Capitalisation: $1.87 trillion

Meta Platforms

Meta Platforms now boasts monthly active users of 3.98 billion people across its ‘family’ of apps, comprising Facebook, Instagram, threads and WhatsApp — an increase of 6% compared to Q4 2023.

2023 full-year results saw ad impressions across the family rise by 28% year-over-year, while the average price per advert dropped by 9%. Accordingly, revenue rose by 1% to $134.9 billion. CEO Mark Zuckerberg enthuses that ‘our community and business continue to grow. We've made a lot of progress on our vision for advancing AI and the metaverse.’

A common theme among analysts for 2024 is that the company needs a new catalyst to sustain further gains. But the next catalyst could well come externally — with US politicians considering a ban on competitor TikTok unless parent ByteDance sells the app to a non-Chinese company.

Market capitalisation: $1.26 trillion

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Past performance is not an indicator of future returns.