Ranking The 4 Biggest AI Arms Race Stocks

Photo by Steve Johnson on Unsplash

“Money is just a transient commodity that has not been converted into GPUs yet.” Those were the words of Dr. Bojan Tunguz, who spent the last five years developing machine learning and artificial intelligence (AI) programs for chipmaker Nvidia.

Since he’s now leaving his post at Nvidia, Dr. Tunguz thought he’d share some sage advice with the rest of the industry in a now-viral Twitter post:

Bojan Tunguz Nvidia

(Click on image to enlarge)

This wasn’t just his opinion, either. “It’s totally undisputed conventional wisdom in tech circles,” Dr. Tunguz explained in a following tweet.

Nvidia is the world’s leading manufacturer of Graphics Processing Units, or GPUs. As the name implies, these GPUs are crucial for creating graphics, videos, and images — rendering the visual effects we see in Hollywood blockbusters and our favorite streaming shows. They’re also critical for 3D modeling, architectural design, and dozens of other real-world applications.

GPUs use a process called “parallel computing” to make the magic happen. It involves thousands of individual cores working in sync to complete massive computations all at once.

Where your computer’s CPU might have 4 or 8 processor cores, the latest Nvidia card has 16,384 cores all working in tandem. That’s a massive amount of computing power to have at your fingertips. It’s been enough to unlock some of the biggest high-tech breakthroughs of the last decade.

For example, a GPU’s parallel cores can typically mine cryptocurrency 10X faster than a conventional CPU. So Nvidia’s graphics cards became a red-hot commodity during the last Bitcoin boom in 2021.

Now, the same high-tech hardware has become crucial for fast-tracking AI research. And a former Nvidia insider has just confirmed the company’s nearly insurmountable hardware advantage.

So, what does the competition think? In an announcement this past Monday, the CEO of Deepmind (Google’s AI business) committed to investing $100 billion in AI development. And late last week, Apple renewed its pledge to integrate AI into its line of Mac computers — leading to a $112 billion surge in market cap as investors piled in.

The AI arms race is here. And it’s projected to add a staggering $200 trillion to the global economy. Only a handful of companies have pockets that are deep enough to keep up. But which one of these stocks, if any, should you add to your portfolio today?

The answer will probably surprise you.


Scoring the Market's Biggest AI Superpowers

Today, we’re going to use my Green Zone Power Ratings system to take a closer look at some of the “Magnificent Seven” mega-cap stocks now leading the AI revolution. I’ve developed and refined this system over the last decade to account for both technical and fundamental factors, helping us compress what would otherwise take hours of research into a quick “at-a-glance” score of 0 to 100.

That final score can tell us whether a stock is poised to outperform or underperform in the months ahead. Here’s the scoring breakdown just to refresh your memory:

Green Zone Power Ratings system Score

So let’s dive right in.


AI Mega-Stock No. 1: Nvidia (NVDA)

As you already know, Nvidia has a massive hardware advantage in the world of AI. And the company’s competitors will likely spend the next few years just trying to catch up. Nvidia’s Green Zone Power Rating illustrates this:

Green Zone Power Ratings system Nvidia

Image Source: Money&Markets

Nvidia is Wall Street’s odds-on favorite to drive the next wave of major AI breakthroughs. Which is why the company’s shares have gained more than 200% over the last year. And yet it still has a Green Zone Power Rating of 70 out of 100 — meaning it’s likely to at least double the market’s returns over the next 12 months.

When we drill down deeper, we can see that Quality and Growth are both maxed out. This is going to be a recurring theme among the mega-cap AI stocks we’ll look at today. They’re all great at what they do. Nvidia is nearly maxed out on momentum as well, thanks in large part to its epic bull run.

But due to the stock’s sky-high price-to-earnings ratio (now over 73), that Value rating is discouraging to say the least.


AI Mega-Stock No. 2: Google/Alphabet (GOOGL)

Google has some of the deepest pockets in the tech world, and it’s committed to throwing the wealth of a small country at AI research and development. The company also has a culture of innovation and a knack for making bleeding-edge breakthroughs. For instance, it developed Adwords and created a multi-billion-dollar industry out of thin air.

Google is generally seen as Nvidia closest competitor in the race to develop AI. So, the Green Zone Power Rating looks remarkably similar:

Green Zone Power Ratings system Alphabet (Google)

Image Source: Money&Markets

A Green Zone Power Rating of 71 out of 100 means Google is likely to see 2X the momentum compared to the market over the next year. Just like its closest competitor, it’s showing high marks for Quality, Growth, and Momentum.

Also worth noting is its valuation — just one-third of Nvidia’s, but still relatively high at a price-to-earnings ratio (P/E) of 26. And that’s after a 50% rise in share price over the last year.

Where Nvidia is more of a “pure” play on AI and computer hardware, Google’s business is substantially more diversified. That might sound like it’s a more conservative choice, but you’re still paying a premium for the company’s AI potential.


AI Mega-Stock No. 3: Apple (AAPL)

Apple has been delivering must-have consumer electronics for nearly half a century. But when it comes to the AI race, the company’s coming up short. And investors aren’t happy about it.

After joining in on 2023’s “Magnificent Seven” rally, Apple’s shares started sliding at the end of last year. It’s recently been trading at roughly the same price as 12 months ago (compared to a 200% gain for Nvidia and a 49% gain for Google).

If you’re familiar with Apple as a company, then this shouldn’t really come as a surprise. After all, Apple’s all about the “total package.” It’s never really been a software company or a development company. Developers often have to jump through hoops just to get their software onto Apple products. Cutting-edge software just isn’t the company’s specialty.

And the company’s Green Zone Power Rating makes things look even worse:

Green Zone Power Ratings system Apple

Image Source: Money&Markets

38 out of 100 is only a few points into Bearish territory, but it’s still concerning. Shares are likely to continue underperforming for the next year.

What’s remarkable here is how the company still has high scores for Quality and Growth. But with its massive size, volatile swings, and momentum working against it, Apple is clearly not the best AI buy for investors in 2024.


AI Mega-Stock No. 4: Microsoft (MSFT)

Microsoft is a company many of us take for granted. We boot up our computers every morning, sip our coffee while the Windows logo flashes on screen, and we go about our day. But we’ve built entire industries on Microsoft Software like Excel and SQL.

Microsoft has a practically untouchable track record of innovation in the tech world. And the company’s AI development is already off and running. Microsoft recently inked a $13 billion deal with OpenAI, the developers behind the breakthrough ChatGPT platform that reached 100 million users in just two months.

The company is already working to integrate OpenAI’s Large Language Model (LLM) AI into its Bing search engine, which could quickly establish them as an industry leader in AI. And it has the best Green Zone Power Rating of any major AI stock:

Green Zone Power Ratings system Microsoft

Image Source: Money&Markets

77 out of 100 puts Microsoft ahead of its AI competitors and right on the edge of Strong Bullish territory. Once again, we’ve got great scores for both Quality and Growth. But Microsoft has a serious edge when it comes to Volatility and Momentum. One quick glance at the stock’s chart will show you why.

Microsoft has been on a steady upward march for the last year, gaining more than 40% without any major pullbacks or downturns:

Microsofts steady rise to the top of AI

Image Source: Money&Markets

As you can see, it pays to double-check a stock’s Green Zone Power Rating before you decide to invest. Microsoft, Apple, Nvidia, and Google are often mentioned in the same breath when it comes to AI development. But as you’ve just seen, these companies represent four very different investing opportunities right now.

Apple is unlikely to lead the charge when it comes to new AI development in 2024. And with a Green Zone Power Rating of just 38 out of 100, it’s likely to underperform as well.

Nvidia and Google are Wall Street’s presumed leaders in the AI space. Both companies’ shares represent a relatively similar opportunity as a result, and both should outperform in 2024 — that is, unless investors grow wary of paying many of the quite high valuation multiples these stocks now command.

Microsoft is an even more compelling opportunity with a Green Zone Power Rating of 77 out of 100. And you can expect shares to keep rising as the company rolls out new AI-powered software features.


More By This Author:

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