Machine learning (ML) is critical to unlocking advanced artificial intelligence (AI) technologies. In particular, ML plays a crucial role in enabling AI systems to learn from data, make decisions with minimal human intervention and improve performance over time. Generative AI received an enormous amount of attention last year due to the launch of OpenAI’s ChatGPT. Nowadays, software companies are still racing to implement their own variety of software products embedded with generative AI chatbots.
Investors were happy to follow the AI trend, sending a plethora of software stocks to new heights over the past twelve months. However, there are signs that the honeymoon period over artificial intelligence may be coming to an end. Investors are now beginning to seek tangible results. Last week, the Nasdaq 100 index lost $1 trillion in value due to investors becoming fatigued about the AI “craze.”
Alphabet (GOOG,GOOGL)
Last week’s “Big Tech” rout precipitated after Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) released its second quarter earnings report for fiscal year 2024. Total revenue increased 14% year-over-year to $84.7 billion. The tech giant’s operating margin improved, expanding 300 basis points to 32%. Alphabet’s cloud arm, Google Cloud, drove much of the quarterly top-line growth. Google Cloud surpassed $10 billion in quarterly revenue for the first time; on a similar note, cloud-related quarterly operating profit reached a record $1 billion. However, investors were spooked about Alphabet’s ad revenue, which beat analyst expectations but grew slower than in the first quarter.
Investors are also becoming concerned about Alphabet’s “bloated” capital expenditures, which came at around $13.6 billion for the quarter. In other words, investors are unsure how long it will take for Google’s expensive AI investments to pay off. However, Alphabet is trading at an attractive multiple, and the growth of its cloud business is very promising. In particular, Alphabet trades at 21.2x forward earnings, the cheapest of all the major tech giants.
Nvidia (NVDA)
Another machine learning stock that needs to be on your buy list this summer is Nvidia (NASDAQ:NVDA). The AI-focused chipmaker has been an incredibly lucrative stock play since last year. Nvidia’s shares have more than doubled on a year-to-date basis, and in 2023, the chipmaker rallied 239%. Last week’s tech sector rout also negatively affected Nvidia’s valuation. Nvidia slumped 6.8% earlier Wednesday. However, since July 10th, according to Koyfin, the AI chipmaker has seen its shares fall more than 23%. This creates another buying opportunity for eager investors to jump onboard the machine learning and generative artificial intelligence trend.
Wall Street analysts have struggled to predict Nvidia’s earnings from quarter to quarter. Given the pent-up demand for the chipmaker’s high-performing chips, which help develop machine learning algorithms and the large language models (LLMs) that underpin generative AI, analysts will probably continue to underestimate Nvidia’s financial figures.
That is all to say, while Nvidia is amid a slump, it could make an intriguing long-term investment.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) makes the final entry on this machine learning stock buy list. Software makers have been researching machine learning for over a decade. In particular, Microsoft invested significantly in machine learning and AI in the early 2010s. One notable milestone was the establishment of Microsoft AI and Research Group in 2016, which consolidated various AI research efforts under one umbrella to accelerate advancements in the field.
Microsoft’s cloud service, Azure, has been a key conduit for deploying machine learning development tools. In 2015, Microsoft launched its Machine Learning Platform in Azure, which would help with Big Data processing. Since the rise of generative AI, investors have been closely watching Microsoft Azure’s growth. The first couple of quarters for 2024 saw strong growth in Azure due to the high demand for AI workloads. However, the company’s most recent quarterly report underwhelmed. Azure revenue grew 29% year-over-year, while analysts had expected 31% year-over-year. This marks the first miss for Azure since 2022.
Despite a short-term headwind, Microsoft remains one of the top machine learning stocks to buy due to the breadth of its cloud computing platform. Investors betting on machine learning stocks should consider the software maker.
On the date of publication, Tyrik Torres 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 InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.