Three AI Stocks to Watch

AS HEAVYWEIGHTS Google and Microsoft duke it out over AI, upstarts like C3.ai enjoy natural advantages

Don’t always go with the big names. When it comes to investing in artificial intelligence, legacy players like Microsoft (MSFT) and Google’s parent company, Alphabet (GOOGL), might not offer the top returns because they devote only a small portion of their portfolios to the sector. Some cryptocurrency AI projects, like Fetch.ai (FET) and The Graph (GRT), have strong management teams and seem ready to focus long-term on decentralized intelligence and Web3 protocols.

Despite its lofty valuation, NVIDIA (NVDA) will likely continue to outperform in positive

momentum conditions. The company manufactures next-generation semiconductors to power artificial intelligence, self-driving vehicles and the future of the metaverse. C3.ai (AI) will continue to concentrate on enterprise-scale AI applications through software-as-a-service.

But Luckbox remains confident in our top stock prediction in December’s annual forecasting issue. We anticipated Palantir (PLTR) would continue its turnaround effort, and since then the company has turned a profit, accelerated its autonomous decision-making and increased its quarterly revenues by 18% year-over-year.

Palantir’s Edge AI succeeds in low-power

and low-bandwidth conditions that occur with drones, turbines and manufacturing systems. At press time, shares in Palantir had increased 55% this year, and analysts continue to raise estimates. Raymond James set a 12-month target of $15 per share. With increased liquidity and greater adoption of higher-risk assets, Palantir could soar past that target in the year ahead.

For insight into the emerging battle between Google and Microsoft AI stocks to watch, Luckbox sought the wisdom of Seeking Alpha’s highly regarded analysts. Their comments appear on these two pages.

—Garrett Baldwin

C3.ai : Cheaper AI Than You’d Think

C3.ai (AI) has soared on the hype surrounding any business related to AI.

But the enterprise AI software company traded down to irrational levels to end 2022 because of weak short-term results from a switch in the pricing model.

Even after the big rally, the stock trades at just 4.5x the expected value of 2024 sales targets.

Wise investors dumped C3.ai stock on the recent rally from under $10 to over $30 in just over a month. We remain bullish on the company, which is trading at a major discount because of the painful transition to a payas-you-go consumption model.

The good news is C3.ai is a “pick and shovel” software developer of the generative AI chat competition ongoing with

Google and the OpenAI partnership with Microsoft. C3.ai gets to license the best features of the AI chat technology from both tech giants while hopefully avoiding the errors inherent in both products.

C3.ai is far cheaper than the market thinks because of the irrational value when the stock dipped to only $10. C3.ai tripled in a couple of months, but the valuation remains very appealing at around $20.

Investors looking to own the AI

stock may consider a starter position in the $20s and look to acquire more shares on any return to the previous trading range starting at $15. After all, C3.ai isn’t likely to report growth in the next couple of quarters, likely leading to dissatisfaction among investors holding the stock in the near term.

—Excerpted from a Stone Fox Capital contribution to a Seeking Alpha newsletter. Reprinted with permission from Seeking Alpha.

Google vs. Microsoft — one has triple the potential returns

ChatGPT has become the fastest-growing internet application in history, kicking off a cycle of AI hype that has driven some investors out of their minds.

Microsoft is spending a lot on AI, but Google is spending far more and may sink as much as $300 billion into improving its AI tech through 2028.

Both Google and Microsoft are likely AI champions of the future that will use the technology to cement their strong positions in cloud computing.

But one of these tech titans has superior valuation, a faster long-term growth rate and a projected 24% annual return potential over the next three years. It’s clearly the better buy.

Despite Google’s shaky launch of its AI chatbot Bard, the AI hype cycle has created an opportunity for Google even as the onset of high-profile competition threatens the tech giant’s prestige as the leader in the industry, says Wells Fargo analyst Brian Fitzgerald.

Google has a tech lead in conversational AI and any notion they’re playing catch-up is “naive,” Fitzgerald says.

The Watson-like Bing AI

Some think Microsoft’s decision to integrate OpenAI’s product into Bing is game-changing or even world-changing—like the introduction of the iPhone.

IBM’s former CEO, Ginni Rometty, hailed Watson as a world-changing “moon shot” that would diagnose cancer, forever alter established industries and even create new industries.

For 30 years, IBM has prided itself

on generating more patents than any other U.S. company. But stockholders haven’t benefitted from those much-hyped patents or from Watson.

In the limited time since ChatGPT has taken the world by storm, there’s zero evidence AI is going to move the needle for Microsoft.

Clearly, the better buy Google is generating higher free cash flow than Microsoft. It’s growing faster and spending more on R&D that literally could change the world.

Google’s growth is similar to Microsoft’s except in free cash flow, where it’s expected to deliver Buffett-like growth of 18% annually through 2028.

Historically, Google is worth about 26X earnings and today trades at 18.3 but just 10.8X cash-adjusted earnings.

• 0.74 cash-adjusted price-toearnings growth (PEG) ratio

• Secure growth at a wonderful price

Microsoft is historically worth 26X earnings in the Nadella cloud computing era and today trades at pretty much fair value and a cash-adjusted PE of 18.2.

Two long-term champs

The near-hysteria over AI that has rocked the nation for the last few months seems sure to disappoint speculators who think they can get rich quickly with this exciting new technology.

Don’t get us wrong; AI is the future. It promises to revolutionize pro-

ductivity, automation, data analysis, drug development and just about every other industry on Earth.

But as fun and impressive as ChatGPT can be, Bing will not take the search crown from Google. The data is clear. Bing has NOT been gaining market share even after Microsoft paid $10 billion for a splashy headline about its latest investment in OpenAI.

• An investment that will likely pay off at some point in the future

• Though largely because Microsoft will incorporate the technology into cloud computing, not search.

But for new money today, the better buy is clear; Google is a smart way to play the recent AI hype with a strong margin of safety.

The two companies offer similar long-term return potential. Google’s prodigious free cash flow, expected to grow nearly 20% annually through 2028, will eventually make it one of the best dividend growth blue chips of the future.

—Reprinted from Dividend Sensei, a Seeking Alpha Marketplace newsletter. Edited for brevity and republished with permission from Seeking Alpha.