Stocks to buy

In recent weeks, there have been many discussions about artificial intelligence (AI) and machine learning (ML) assisting in stock predictions. They could end up replacing money managers in the asset management game.

It’s bad enough that ETFs have commoditized the job money managers do. Now, tech wants to put them out of business by turning asset management over to computers.

In July, the Cornell Chronicle published an article by two professors at Cornell University’s Computer School that discussed an academic paper published in April entitled News-Based Sparse Machine Learning Models for Adaptive Asset Pricing.

“The paper proposes two novel sparse machine learning-based asset pricing models to explain and predict stock returns and industry returns based on the financial news,” stated the paper’s introduction.

There is no question that AI and ML are influencing the financial services industry. Businessweek recently asked whether AI can beat the market. The article discussed how Voleon Group, a hedge fund full of data scientists, has $5 billion in assets under management. It is using AI to beat the markets.

However, if the results are any indication, money managers have nothing to worry about. According to the article, the Eurekahedge Hedge Fund AI Index, composed of 12 hedge funds using AI to pick stocks, trailed the main hedge fund index by 14% from August 2018 through August 2023.

Ultimately, machine learning is becoming essential to how Wall Street invests. Here are three machine learning stocks for 2024 and beyond that will ride this trend.

Nvidia (NVDA)

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No discussion about machine learning should be had without Nvidia (NASDAQ:NVDA) in the middle of it. Its high-performance chips, such as the GH200 Grace Hopper super chip — an H100 GPU combined with its Grace CPU — drive AI and ML initiatives.

As IEEE Spectrum reported in September, “The company has consistently made use of the most advanced manufacturing technology available; the H100 is made with TSMC’s N5 (5-nanometer) process and the chip foundry only began initial production of its next-generation N3 in late 2022.”

As far back as 2017, Nvidia CEO Jensen Huang was discussing the trend of machine learning. At the company’s annual developer conference, Huang stated that AI and machine learning would transform the automotive and healthcare industries.

Six years later, how right he was. In 2021, the global AI healthcare market was estimated to be $11 billion. By 2030, it’s projected to grow to $187 billion. While the global AI automotive market isn’t nearly as big, it is expected to grow from $2.6 billion in 2022 to almost $10 billion by 2030 — a compound annual growth rate of 27.2%.

Nvidia chips will drive a significant part of that growth.

Cisco (CSCO)

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I included Cisco (NASDAQ:CSCO) in my trio of selections because it is currently buying Splunk (NASDAQ:SPLK) for $28 billion, or $157 a share.

“We’re excited to bring Cisco and Splunk together. Our combined capabilities will drive the next generation of AI-enabled security and observability,” CEO Chuck Robbins said, announcing the deal on Sept. 21. “From threat detection and response to threat prediction and prevention, we will help make organizations of all sizes more secure and resilient.”

Splunk stock bottomed out last October around the $70 mark. It’s up more than double in the year since. While Cisco is paying a 31% premium for Splunk, it traded at around $225 as recently as August 2020.

Companies use the Splunk cloud platform to make faster, more effective decisions by enabling employees to access, understand and make decisions by accessing data in less time than it took without Splunk.

The big argument for making the deal is that the combination delivers AI and data management capabilities, arguably the best in tech. The problem is that investors aren’t buying it. Splunk stock trades more than $10 below the $157-a-share offer. And CSCO’s share price has lost ground in the weeks since.

While there are doubts whether the corporate cultures will mesh, not to mention Cisco’s never done a deal this big, Cisco does have a history of mergers and acquisitions, albeit slightly smaller transactions.

Accenture (ACN)

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Accenture (NYSE:ACN) is an IT consulting firm. Its 733,000 employees help clients operating in more than 100 countries worldwide. It gets paid handsome consulting fees to provide these clients with the technology advice and know-how necessary to grow their businesses.

Machine learning is at the heart of this advice.

In June, the company announced it would invest $3 billion over three years in its AI & Data practice to enable it to better help its clients transform into AI-centric businesses. As part of its announcement, it launched the AI Navigator for Enterprise generative AI-based platform. That product will help clients become more AI-compliant. It is doubling the AI & Data practice to 80,000 employees worldwide to accomplish this task.

“Over the next decade, AI will be a mega-trend, transforming industries, companies, and the way we live and work, as generative AI transforms 40% of all working hours,” said Paul Daugherty, group chief executive of Accenture Technology.

Estimates put the revenues from generative AI at $300 million in 2023, a tiny sliver of the $64 billion it brought in across the entire company.

However, it is early days in the AI transformation game. The company has plenty of time to grow those numbers substantially.

On the date of publication, Will Ashworth did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.