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Artificial Intelligence (AI) represents one of the biggest paradigm shifts in human history. By relying on machines that are programmed to think, humanity is delegating greater responsibility to its creation. Doomsday scenarios aside, the growth of AI has significant implications on work, life and the functioning of our modern society.
The world of simulated intelligence has evolved significantly over the decades. It has slowly seeped into virtually every sector of society, including finance, where investors rely on computer algorithms to execute trades and re-balance portfolios.
For investors, AI isn’t just a tool that can improve their stock-picking universe, but an industry in which they can gain broad exposure. Today, AI is a budding universe made up of diverse companies seeking to transform society.
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It is estimated that, by 2035, AI technologies will have the potential to boost productivity by at least 40%. Industries ranging from information technology to manufacturing and up to financial services are expected to reap significant gains as a result of AI proliferation. According to Accenture Research and Frontier Economics, AI will stimulate additional growth of 1.7% across 16 industries over the next two decades.
Estimates about the size and trajectory of the AI industry vary significantly, but most prognosticators expect significant growth over the next decade. One report from Goldstein Research shows that AI will reach $14.2 billion by 2023, resulting in a compound annual growth rate (CAGR) of 17.2%.
Although AI has been blamed for job losses, its economic impact is expected to be more favorable. That’s because AI boosts profitability and economic growth, thereby leading to job creation in other fields. However, that’s not to say the transition won’t be painful. AI has and will continue to displace lower-skilled or manual occupations. The next industry that could be impacted is transportation, which employs a large swathe of the population.
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If you’re an investor looking to capitalize on the AI revolution, the following list of stocks should be on your short list.
IBM (IBM )
IBM has had its fingerprints all over AI since the early days of machine learning. Since 2011, the technology giant has operated a “cognitive solutions” business, having recently added Watson AI for its mainframe operations. Watson AI is actually a big data service that helps companies make sense of the massive amounts of information stored on their private clouds.
IBM’s mainframe product cycles have shown strength in recent years; combined with an improved business outlook, the company’s AI component is expected to feed into a stronger share price in the future.
Nvidia (NVDA )
Graphics processing unit (GPU) manufacturer Nvidia is also making the most out of machine learning and AI for computer vision. Nvidia inputs are today used for AI functions related to computer interpretation, such as the cameras on driverless cars. Analysts say the company could become a major player in AI with a projected opportunity of up to $10 billion.
The company has also reported a huge surge in data center business, a sign that data analytics, artificial intelligence and advanced GPUs will be at the center of future revenue growth. Businesses are increasingly looking to Nvidia to leverage GPUs on demand to power their various AI applications.
Nvidia isn’t a big dividend payer, as its yield is a mere fraction of the technology sector average. However, it has registered dividend growth for four consecutive years.
Microsoft (MSFT )
Software giant Microsoft is heavily invested in artificial intelligence across multiple business lines, including Bing search engine and Xbox gaming console. Azure, the company’s cloud platform, also uses AI capabilities for Microsoft’s enterprise clients. Azure continues to be one of Microsoft’s most promising business segments, signaling continued growth for its AI and machine-learning technologies.
The Azure platform is widely expected to be at the center of Microsoft’s future expansion. It will also be the platform that helps the software giant compete against the likes of Alphabet, which is also ramping up its cloud platform. Nevertheless, Microsoft is headed in the right direction with respect to its cloud-powered AI solutions. At present, Azure sales are enjoying double-digit percentage growth when measured year-over-year.
Microsoft is a perennial dividend earner, having grown its yield each year since 2004. Income investors are banking that Azure will help the software giant boost its profits and dividend payments over the long haul.
Apple (AAPL )
Apple has been a leading player in AI since at least 2011, when it launched the Siri intelligent personal assistant. Since then, the platform has been integrated into Apple’s iOS, watchOS, macOS and tvOS operating systems. The Siri technology has undergone several upgrades since it was launched. Apple has also made successful acquisitions of AI developers and has announced the launch of a new AI research lab in Japan.
The iPhone maker has grown its dividends steadily since 2013.
Intel (INTC )
Intel has also managed to boost AI capability through the development of its own AI chip. The company has also acquired AI companies, including the 2015 purchase of Altera for $16.7 billion. One of its more promising AI ventures is Mobileye, which teaches cars how to respond to and learn from new driving environments based on past experience.
In addition, Intel acquired a company called Nervana to boost its AI and machine-learning business segments. By doing so, the company is ratcheting up efforts to take market share from Nvidia’s GPU segment. Intel’s expansion into GPUs could become a source of continued growth if exploited effectively. The company’s top brass says Nervana’s business cycle will start off slow, but will pick up considerably as more users figure out how to use it.
While Intel’s dividend yield is much higher than the technology sector average, this is offset by a much shorter payment period than other industry juggernauts. A growing presence in the GPU industry could help the company sustain its yield over the long haul. However, investors should be prepared for a long business cycle with respect to Nervana.
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AI represents one of the biggest paradigm shifts in our society. For investors, it provides a rare opportunity to latch onto a fast-growing industry with plenty of upside. That being said, investors should navigate this emerging landscape carefully to avoid the pitfalls that often plague emerging sectors. The five companies listed above provide a good start.
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