What are we looking for?
Top-quality U.S equities from a factor-investing perspective benefiting from the trend in artificial intelligence (AI).
Investing in artificial intelligence stocks presents a compelling opportunity for investors seeking innovation, growth and diversification in their portfolios. With AI at the forefront of technological advancement, companies in this sector stand to benefit from increased efficiency, productivity and long-term growth potential. AI stocks offer exposure to a wide range of industries, including health care, finance and manufacturing, providing diversification benefits. As AI continues to evolve and become more integral to various aspects of business and daily life, investing in these stocks allows investors to tap into the competitive advantages and global reach of companies leading the way in AI innovation.
Our research team compiled a list of U.S.-listed stocks that are benefitting from the AI boom, focusing on stocks across industries such as AI technology development, cloud computing, semi-conductor manufacturing, software development, robotics, e-commerce, health care and autonomous vehicles. From this list, we filtered based on the following requirements:
Market capitalization of at least US$5-billion to prioritize larger, more liquid and less volatile companies.
In pursuit of robust earnings performance, we searched for companies with a five-year EPS growth rate of at least 20 per cent.
Finally, we identified U.S. stocks with the highest-quality factor rating, as assessed by Trading Central’s Quantamental Rating, which gauges strong financial health based on above-average profitability ratios, leverage ratios and operating margins compared with industry peers.
For informational purposes, we have also included year-to-date and one-year price performance, the recent stock price, and price/earnings ratio.
More about Trading Central
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and worldwide.
What we found
Topping our list is Cisco Systems CSCO-Q, a leading global supplier of network hardware and software. The company is leveraging the AI surge by delivering essential infrastructure such as networking and data centre products, along with cybersecurity and collaboration tools featuring integrated AI capabilities. The stock has the highest TC quality factor rating on our list at 86 out of 100, which indicates strong financial health. The company’s profitability ratios, leverage ratios and operating margins are superior relative to industry peers. The company also has the highest five-year EPS growth rate on our list at an impressive 173.6 per cent. The stock is under pressure Thursday after the company lowered full-year sales forecasts because of slowing networking hardware orders, which might make it attractive to bargain hunters. The stock now has the lowest P/E on our list at 16.08.
Microsoft MSFT-Q, the software and hardware development giant, has the largest market cap on our list at US$2.74-billion. Microsoft’s stock has reached record highs this week owing to robust earnings, particularly in cloud, gaming and productivity. The unveiling of new AI products at the Ignite conference is poised to strengthen the Azure cloud platform, broadening its customer appeal. Furthermore, Microsoft’s strategic acquisition of Activision Blizzard expands its gaming portfolio with popular titles such as Call of Duty and World of Warcraft, leading to an increased reach and a larger subscriber base for the Xbox Game Pass service. The stock has a TC quality factor rating of 77 out of 100, which is above average, indicating very strong financial health relative to its industry peers.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.