Artificial intelligence stocks: the best AI companies to invest in

Artificial intelligence stocks have been one of 2023’s key success stories. But can you trade the ChatGPT’s creator, and which other AI companies should you be considering?

• AI in 2023
• Should you invest in AI?
• ChatGPT and OpenAI
• How to start AI stock trading
• AI stocks in 2023

AI overview in 2023

After an impressive 2022 – most notably thanks to OpenAI’s launches of DALL-E, an image generation bot, and ChatGPT, a chatbot – AI has dominated much of the investing agenda in 2023.

Companies are scrambling to show off their own artificial intelligence tech, or attempting to utilise the power of ChatGPT and its competitors in new ways. While the true impact of generative AI remains unclear, it appears certain that the status quo has already completely changed.

In the rush to use AI, there are bound to be some clear winners and some significant losers. Indeed, other areas of the industry aren’t performing as well as expected. Driverless cars, for instance, aren’t driving growth.

AI has also come under more scrutiny than ever before this year. Many are calling for greater regulation against the dangers of artificial intelligence, while the continued propensity for chatbots to confidently give wrong answers has led to questions over whether the tech is ready for mass use.

The processes used to create generative AI models have also come under fire. Sites like Reddit and Twitter have moved to close off their API access, in part as a reaction to being used as training grounds for new chatbots.

Should you invest in AI?

The current artificial intelligence landscape can be full of opportunities for traders and investors. If you can find the next AI success story and get in before it blows up, there’s a chance to earn a significant profit.

For traders, of course, the opportunities are doubled. If you think the AI industry is set to stall, you can open a short position and potentially profit from the falling prices. And there are headwinds facing the sector – the computing power required for high-performance machine learning, for example, is growing at an exponential rate.

The main issue for investors and traders alike, though, is that many of the leading lights in AI are largely privately owned – or at least not available on stock exchanges. This means you might have to get creative to take your position.

Chat GPT and OpenAI

Take the research laboratory responsible for both ChatGPT and DALL-E, for example. OpenAI was founded in 2015 by a notable set of backers including Elon Musk, Peter Thiel, Sam Altman and Reid Hoffman. To date, it has shown no intention of going public.

The best way of taking your position on OpenAI, then, might be via its biggest partner: Microsoft. Microsoft invested $1 billion in OpenAI in 2019, and in early 2023 announced a major expansion of the partnership between the two firms. MSFT would supply the huge computing power required for OpenAI’s research, and the AI firm’s products would be made available to Microsoft clients.

That relationship bore early fruit with the integration of the latest iteration of ChatGPT, GPT4, into the Bing search engine, with the bot stepping in to answer some questions directly. Users can also ask follow-up questions to the AI.

We’re yet to see any concrete data on whether the integration has helped Bing catch up to Google in the search stakes. But it was sufficient to spook Google into releasing its own generative AI, Bard, at short notice.

How to start AI stock trading

There is, however, a selection of AI stocks you can trade directly. With City Index, you can take your position on their price action using CFDs, enabling you to go long or short. Follow these steps to get started:

1. Open your City Index account and add some funds
2. Log in to our award-winning Web Trader platform or download our mobile trading app
3. Search for any of our best artificial intelligence stocks listed below
4. Choose to buy to go long, or sell to go short

Alternatively, you can buy and sell our full selection of stocks – plus indices, forex, commodities and more – with a City Index demo account, which gives you virtual funds to try out trading on live markets with zero risk.

The best AI stocks in 2023

The market for AI investors in 2023 can be split into three main areas:

• Tech giants investing in AI
• Pure-play AI stocks
• AI suppliers

Let’s take a closer look at each one.

Tech giants investing in AI

Microsoft isn’t the only blue-chip stock making major forays into artificial intelligence. In fact, almost every big tech firm is investing in the space on some level. But which are doing best?

IBM (NYSE:IBM)

Market cap: $124 billion

IBM has been a key player in artificial intelligence for a long time, including creating the ‘IBM Watson’ AI back in 2011. It provides AI-backed solutions to companies, and its research into quantum computing could power the next generational leap in AI capability. According to research by IDC in 2020, the company is the #1 provider of AI lifecycle technology.

IBM’s Watson is still a major AI player today, including powering AI-driven commentary at the Wimbledon championships.

Unlike many big tech stocks, IBM didn’t underperform in 2022 – in fact, it beat the S&P 500 (US SP 500) index over the course of the year. This year, it has struggled to continue that growth path, dipping to a low of $120 in May, before recovering back up to $135.

Amazon (NASDAQ:AMZN)

Market cap: $1.3 trillion

Amazon has made AI a cornerstone of many of its products, including Alexa, Amazon Go and Amazon Web Services (AWS). The AWS product – already a key growth driver at the tech firm – might be the one to watch, with Amazon already offering machine learning and deep learning capabilities to AWS customers via its Amazon Lex, Amazon Polly, Amazon Machine Learning and Amazon Rekognition services.

Amazon Lex, for example, can be used to build conversational interfaces in applications. It can understand human speech and offer human-level interactions as a chatbot. Polly synthesizes human speech, and Rekognition can analyse images and faces.

The company has also announced plans to move into the generative AI space.

Investors in Amazon had a 2022 to forget, with the company’s shares ending the year some 50% down. However, this year it has performed better, returning to the $1 trillion club thanks to better-than-expected earnings. It is in the midst of a major cost cutting drive, including laying off 27,000 workers – its AI work doesn’t appear to be part of the cull.

Learn what Amazon owns.

Alphabet (NASDAQ:GOOG)

Market cap: $1.7 trillion

Alphabet has a long, storied history with AI.

It owns one of the major players developing a deep learning AI, DeepMind. Unlike other AIs, DeepMind isn’t built for a specific purpose – rather, it can learn new tasks without any alterations to its code. The company tests it chiefly using computer games.

The company has also made plays into the chatbot space, most famously thanks to its Google Bard AI, which is available as part of Google search.

In fact, the generative pre-trained transformer technology that gives ChatGPT its name was first invented at Alphabet’s headquarters. And in 2022, its LaMDA AI made headlines when one Google engineer claimed it may be sentient. It’s this technology that powers Bard.

Bard is seen as a direct response to Microsoft’s work with ChatGPT and Bing. But its launch was deeply problematic for the company, with multiple issues that saw Alphabet stock tumble. However, it appears to be back on track, with AI functions powering its latest smartphone – the Pixel 8 – and delivering revenue growth in its search and cloud businesses.

Pure-play AI stocks

Public companies that focus purely on AI were extremely rare up until just a few years ago, when a few IPOs saw some new entrants into the market.

C3.ai (NYSE:AI)

Market cap: $3.9 billion

C3.ai is an AI company which develops cloud software that helps businesses build and run AI applications. It has a wide range of famous customers, including Royal Dutch Shell and the US Air Force, which use C3.ai tech to power their digital transformations using its suite of tools.

The stock launched on the markets in December 2020 in an impressive IPO, opening with a share price of $100, well above the $42 IPO price. A few weeks later, it hit a record high of $183.

Since then, things have gone downhill. C3.ai stock slumped in 2021, then again in 2022, entering 2023 worth just $11. However, AI excitement has helped the stock recover this year, close to its IPO level – before doubts over whether it was now overvalued saw it slump once more.

Darktrace (LON:DARK)

Market cap: £2.4 billion ($2.9 billion)

Another recent entrant into the markets is Darktrace, an AI cybersecurity company and one of the biggest UK AI companies to invest in. It helps organisations detect emerging online threats using machine learning and artificial intelligence, by embedding an application in the client’s network that detects suspicious activity.

Like C3.ai, Darktrace has a diverse customer base consisting of companies, banks and governments. It offers several products, tailored to different users and requirements.

It also had a strong IPO, this time in 2021. Originally priced at 250p, Darktrace climbed over 40% on its first day. A few months later, the company had a share price of over 900p – but it has failed to maintain that momentum since. Today, DARK stock is above its original level, trading at around 340p.

AI suppliers

Artificial intelligence companies aren’t the only ones to benefit when the tech takes off. Making AIs requires a lot of hardware, and the stocks supplying that tech can be a useful indirect investment to the sector.

Nvidia (NASDAQ:NVDA)

Market cap: $1 trillion

Nvidia’s graphics processing chips (GPUs) are used in the data centres that power artificial intelligence – most importantly in the training phase of machine learning. The computing power required to build large language model AIs is estimated to double every 14 weeks, an ‘AI law’ that is helping Nvidia rapidly grow its data centre business.

Indeed, NVDA might be the biggest stock market winner from the AI boom so far. The stock has grown close to 300% this year, partly thanks to stunning earnings that eclipsed analyst expectations – driven largely by the AI explosion. It’s enabled Nvidia to join the $1 trillion companies club, and sparked a wider tech rally.

After an earnings call in May, Nvidia gapped $75 overnight, adding billions to its market cap. Can it continue to grow at this pace? Time will tell. 

AMD (NASDAQ:AMD)

Market cap: $162 billion

Nvidia isn’t the only chip maker on the markets, but many of its rivals are struggling to capitalise on AI in the same way. Advanced Micro Devices (AMD) has long been the biggest competitor to Nvidia, for example, but hasn’t managed to keep pace with NVDA this year.

As you can see below, for the first part of the year AMD was able to ride Nvidia’s rally – and it has still significantly outperformed the S&P 500. However, when NVDA stock exploded to new highs, AMD has retraced, partly as it was unable to demonstrate growth from AI demand.

That may be about to change, though. AMD has bought Nod.AI, an open source AI developer, with the aim of making an ecosystem of AI tools. 

Want to buy or sell any of the artificial intelligence stocks listed here? Open your City Index account.