Artificial intelligence (AI) was the hottest investment theme of 2023. Thanks to interest in generative AI (ie ChatGPT), many tech stocks rocketed. Given the ongoing developments in this space, I suspect AI will be a dominant theme again this year. With that in mind, here are three stocks to consider buying for 2024.
Amazon
Amazon (NASDAQ: AMZN) is a mega-cap tech stock that hasn’t really received much attention on the AI front. But make no mistake, it’s a major player.
Amazon has used AI across its business for many years. From personalising shopping experiences to automating warehouse processes, it has employed the technology in many ways.
But now it is taking things up a notch, with the release of some exciting new products and features. One example there is ‘Amazon Q’. This is a generative AI-powered assistant specifically for businesses.
Another example is the recent roll out of AI-powered image generation (see pic below) for companies that sell on its platform. This is designed to help brands deliver a better visual experience for customers.
Source: Amazon
Now, Amazon isn’t a cheap stock. Currently, it has a forward-looking P/E ratio of about 40. This adds risk.
I’m comfortable with the valuation however. This stock has always traded at a high earnings multiple and that hasn’t stopped it delivering blockbuster returns in the past.
Alphabet
In 2023, Google owner Alphabet (NASDAQ:GOOG) was often seen as a bit of an ‘also ran’ in the AI race. That’s because Microsoft-owned ChatGPT stole the show.
The race is far from over however, and I expect Alphabet to fight back in 2024.
Recently, the company released ‘Gemini’ – its rival to ChatGPT 4. This is very powerful technology (it’s the first model to outperform human experts on Massive Multitask Language Understanding (MMLU)).
Meanwhile, Google is in the process of rolling out AI features across its suite of apps (Gmail, Search, Maps, etc). These should make life easier for users going forward.
The risk here is that ‘ChatGPT’ has become a bit of a verb. This could present ongoing challenges for Alphabet.
With the stock trading on a P/E ratio of just over 20 though (compared to 33 for Microsoft), I like the risk/reward setup as we start 2024.
London Stock Exchange Group
Finally, a UK stock – London Stock Exchange Group (LSE: LSEG).
Now, this company may seem like an odd pick for AI exposure. But here me out. Thanks to its acquisition of Refinitiv a few years ago, LSEG is now one of the biggest players in the financial data space (it sells data to banks, investment managers, hedge funds, etc).
And recently it teamed up with tech powerhouse Microsoft to develop customised generative AI models for banks. The aim of these models is to help firms get more insights out of their data.
LSEG has said customers will begin to see the benefits of the Microsoft partnership in 2024. So I think we could hear about some exciting AI developments in the near future.
There is some valuation risk here. Currently, the stock has a P/E ratio of about 25. I don’t think that’s a crazy multiple however, given the company’s shift towards data and AI.
