There are more than anecdotal reasons to explain why artificial intelligence (AI) remains the talk of the town among investors. In a recent report, The Goldman Sachs Group Inc. (NYSE: GS) commented that a higher percentage of companies mentioned AI in their earnings reports this quarter (Q4 2023) than in the third quarter. The significance is that in the third quarter, AI mentions by companies showed a slight move downward.
This could be a case of history repeating itself. As it was in the early stages of the internet, it's not enough for a company to have the ability to use AI. They have to show investors how using AI helps their business become more efficient (i.e., more profitable).
In 2023, much of the focus was on big technology stocks, specifically the group known as the Magnificent Seven. However, as investors are finding out this earnings season, more companies are discovering ways to use AI that are specific to their business.
This could be an opportunity for investors to follow the next wave in AI. And that's the focus of this special presentation. We're highlighting seven stocks from companies that continue to talk about AI. The twist is there's not a pure play AI stock among them.
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- McDonald’s
- CRSPR Therapeutics
- Fortinet
- H&R Block
- DraftKings
- Spotify
- UnitedHealth Group
#1 - McDonald’s (NYSE:MCD)
McDonald's Corporation (NYSE: MCD) is quickly becoming known as a technology company that happens to make hamburgers. The company was an early adopter of AI and big data analysis to help improve its supply chain management. For example, the company uses AI-driven demand forecasts to reduce waste and ensure timely inventory replenishment.
In 2020, the company launched its Accelerating the Arches growth strategy. This accelerated the company's digital transformation and specifically introduced AI applications that are being seen in features such as automated drive-thrus, which now accounts for about 70% of sales in the company's top markets, and predictive ordering, which use machine learning to predict the menu offerings that are most likely to push sales in its drive-thru business.
While it's impossible to precisely quantify AI's impact on the company's business, shareholders haven't been disappointed. In the last five years, MCD stock has risen by 51.65%. Investors' total returns are even higher when you include the company's dividend, which has a 2.36% yield, pays out $6.68 per share annually, and has been increasing for 48 consecutive years.
About McDonald's
McDonald's Corporation operates and franchises restaurants under the McDonald's brand in the United States and internationally. It offers food and beverages, including hamburgers and cheeseburgers, various chicken sandwiches, fries, shakes, desserts, sundaes, cookies, pies, soft drinks, coffee, and other beverages; and full or limited breakfast, as well as sells various other products during limited-time promotions.
Read More - Current Price
- $292.68
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 17 Buy Ratings, 11 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $320.65 (9.6% Upside)
#2 - CRSPR Therapeutics (NASDAQ:CRSP)
CRSPR Therapeutics AG (NASDAQ: CRSP) is a leader in the field of gene editing. This is becoming a closely watched sector for investors. CRSPR shows how AI, combined with the company's existing CRISPR/Cas 9 platform, provides more precision for modifying gene mutations.
AI is also a powerful tool for gene prediction since it can analyze a large quantity of data and create a knowledge model. Ideally, this will speed up the development of new cancer treatments and vaccine development.
In 2024, CRSPR, in partnership with Vertex Pharmaceuticals, Inc. (NASDAQ: VRTX), received FDA approval, the first-of-its-kind for a CRISPR-based medicine. Casgevy is a gene-editing drug for sickle-cell disease.
CRSP stock has been up 56% in the last 12 months, with much of that gain coming in the last six months in anticipation of FDA approval. However, the stock is up 101% in the last five years and analysts are beginning to raise their price targets for the stock.
About CRISPR Therapeutics
CRISPR Therapeutics is a gene-editing company focused on developing transformative gene-based medicines for serious diseases using its proprietary CRISPR/Cas9 platform. CRISPR/Cas9 is a revolutionary gene-editing technology that allows for precise, directed changes to genomic DNA. CRISPR Therapeutics has established a portfolio of therapeutic programs across a broad range of disease areas including hemoglobinopathies, oncology, regenerative medicine and rare diseases.
Read More - Current Price
- $40.72
- Consensus Rating
- Hold
- Ratings Breakdown
- 9 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $77.93 (91.4% Upside)
#3 - Fortinet (NASDAQ:FTNT)
According to Forbes, 51% of companies plan to use AI for cybersecurity applications, making it one of the leading AI applications for business. Fortinet Inc. (NASDAQ: FTNT) is one of the leaders in this sector. The company's Security Fabric provides AI-driven security that "offers enhanced security, improves visibility and control, and reduces total cost of ownership." The company's products received the 2024 Gartner Magic Quadrant for Enterprise Wired and Wireless LAN Infrastructure.
FTNT stock is up about 10% in the last 12 months and has bounced back sharply off of the 52-week low it hit in November 2023. This reflects the company's year-over-year growth in revenue and earnings. And, at around 48x forward earnings, Fortinet is trading at a discount to many companies in the sector, such as Palo Alto Networks Inc. (NASDAQ: PANW), which trades at around 100x forward earnings.
About Fortinet
Fortinet, Inc provides cybersecurity and convergence of networking and security solutions worldwide. It offers secure networking solutions focus on the convergence of networking and security; network firewall solutions that consist of FortiGate data centers, hyperscale, and distributed firewalls, as well as encrypted applications; wireless LAN solutions; and secure connectivity solutions, including FortiSwitch secure ethernet switches, FortiAP wireless local area network access points, FortiExtender 5G connectivity gateways, and other products.
Read More - Current Price
- $97.19
- Consensus Rating
- Hold
- Ratings Breakdown
- 14 Buy Ratings, 19 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $92.77 (4.5% Downside)
#4 - H&R Block (NYSE:HRB)
About 30% of companies are using AI for accounting. However, it's likely that a significantly higher percentage of taxpayers are using AI for their tax preparation. It will be if they're using H&R Block Inc. (NYSE: HRB).
In December 2023, H&R Block launched its AI Tax Assist product, created in partnership with Microsoft Corporation (NASDAQ: MSFT). The goal was to use generative AI to elevate the customer experience, reduce expenses, and increase productivity.
Investors should pay attention to the company's third quarter 2024 earnings report coming in May for a first look at how customers respond to the AI product. Historically, the current and following quarters are when HRB makes most of its revenue and profit.
It may surprise investors to know that HRB stock has generated 95% share price growth over the last five years. That's in addition to a dividend that yields 2.72% and has a conservative payout ratio of just over 35%.
About H&R Block
H&R Block, Inc, through its subsidiaries, provides assisted income tax return preparation and do-it-yourself (DIY) tax return preparation services and products to the general public primarily in the United States, Canada, and Australia. It offers assisted income tax return preparation and related services through a system of retail offices operated directly by the company or its franchisees.
Read More - Current Price
- $54.72
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 0 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $57.00 (4.2% Upside)
#5 - DraftKings (NASDAQ:DKNG)
It won't surprise many investors to find out that DraftKings Inc. (NASDAQ: DKNG) was a pioneer in using artificial intelligence and machine language models in ways that simplified the customer experience. The question may be, are there areas where the company isn't using AI?
In a June 2023 interview, Paul Liberman, President of Global Product and Technology, at DraftKings, described how DraftKings uses generative AI for internal processes. As Liberman notes, what makes the company an opportunity for AI is its focus on sports modeling, which makes for what he called a "...really, really interesting problem set."
The company must be doing something right. In its most recent quarter, the company had 35% of the online sports betting handle in the U.S. And DKNG stock is up an impressive 142% in the last 12 months. In 2024, North Carolina became the 39th state to approve online sports betting. And six other states have active legislation or ballot initiatives. Each new state represents an additional opportunity for DraftKings to build on its market share lead.
About DraftKings
DraftKings Inc operates as a digital sports entertainment and gaming company in the United States and internationally. It provides online sports betting and casino, daily fantasy sports, media, and other consumer products, as well as retails sportsbooks. The company also engages in the design and development of sports betting and casino gaming software for online and retail sportsbooks, and iGaming operators.
Read More - Current Price
- $40.35
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 23 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $51.00 (26.4% Upside)
#6 - Spotify (NYSE:SPOT)
Next up is Spotify Technology S.A. (NYSE: SPOT). The company has been using AI as far back as 2013. However, in 2023, it took things to a different level with the launch of AI DJ. Spotify is already a favorite of consumers due to the personalization it provides. The AI DJ creates hyper-personalization by combining human editorial expertise with generative AI.
That's far from the only AI application. Spotify also uses generative AI in features such as Discover Weekly, Spotify Wrapped, Podcast Voice Translations, Natural Voice Search, and AI-powered Daylists.
Since launching AI DJ, revenue is up year-over-year, but consistent profitability remains elusive. That's expected to change in 2024 and is a key reason SPOT stock is up 99% in the last 12 months.
About Spotify Technology
Spotify Technology SA, together with its subsidiaries, provides audio streaming subscription services worldwide. It operates through two segments, Premium and Ad-Supported. The Premium segment offers unlimited online and offline streaming access to its catalog of music and podcasts without commercial breaks to its subscribers.
Read More - Current Price
- $460.88
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 22 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $429.96 (6.7% Downside)
#7 - UnitedHealth Group (NYSE:UNH)
UnitedHealth Group Inc. (NYSE: UNH) has been a leader in bringing AI solutions to the healthcare industry for several years. One application is the company's virtual assistant platform that it uses for data collection and personalized care.
The company also features AI in Optum, its data and technology-focused pharmacy management subsidiary. The company launched OptumIQ in 2017 to help centralize data and AI capabilities. The company's long-stated goal is for OptumIQ to play a role in predicting health conditions such as diabetes and atrial fibrillation, which can ultimately lead to lower costs.
And as an investment, UNH stock is about as rock solid as they come. The stock is up 99% in the last five years. The company also pays a reliable dividend with a current yield of 1.53%. The company has increased that dividend for 14 consecutive years. And with a conservative payout ratio of 31%, that streak is likely to keep going for some time to come.
About UnitedHealth Group
UnitedHealth Group Incorporated operates as a diversified health care company in the United States. The company operates through four segments: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx. The UnitedHealthcare segment offers consumer-oriented health benefit plans and services for national employers, public sector employers, mid-sized employers, small businesses, and individuals; health care coverage, and health and well-being services to individuals age 50 and older addressing their needs; Medicaid plans, children's health insurance and health care programs; and health and dental benefits, and hospital and clinical services, as well as health care benefits products and services to state programs caring for the economically disadvantaged, medically underserved, and those without the benefit of employer-funded health care coverage.
Read More - Current Price
- $500.13
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 19 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $626.84 (25.3% Upside)
Is AI just a bubble? You probably hear that a lot. Apparently, many chief executive officers (CEOs) do as well. According to the Boston Consulting Group, about 90% of CEOs are waiting for AI to move beyond the hype stage. And 66% are either ambivalent or dissatisfied with their company's progress.
However, artificial intelligence has been around for nearly a decade. What many of these CEOs are referring to is generative AI. That is still in its early stages. It's also where the greatest opportunity may exist. Goldman Sachs analysts predict that investment in AI in the United States will be close to $100 billion by 2025.
MarketBeat offers a free tool that lets you compare the fundamentals of artificial intelligence stocks. You can also use it to compare companies on other factors such as analyst ratings, book value, debt, dividend, price performance, profitability, and more. You can compare up to ten stocks.
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