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3 Top AI Stocks: November 2023

Motley Fool - Sun Nov 26, 2023

No topic has dominated the financial landscape in 2023 as much as artificial intelligence (AI). Everywhere you turn, it seems there is some new AI story, innovation, or application to discuss.

What's more, some of the top-performing stocks of 2023 have deep ties to AI. And with the AI revolution just getting started, it's likely that many of those stocks will be names to watch for years to come. Let's look at three top AI stocks right now.

Smartphone with 'AI' hologram coming out of it.

Image source: Getty Images.

1. Adobe

Adobe(NASDAQ: ADBE), a longtime leader in design software, is using AI to improve and enhance the creative process.

For instance, Adobe already rolled out numerous AI features, including:

  • Adobe Firefly:This AI add-on to Adobe Photoshop, Adobe Illustrator, and Adobe Express allows users to generate images from text prompts, use generative fill technology to remove existing objects or add new ones into a picture, or add unique textures and surfaces to words and phrases.
  • Adobe Sensei: In partnership with Adobe Analytics and Adobe Experience Manager, this feature helps its clients gain insights into their own customers by analyzing audience behavior and trends -- and, in turn, improving their marketing approach.
  • Auto Reframe:This Premiere Pro tool helps users adjust the aspect ratio of their videos after the editing process is complete, thus allowing them to right-size their videos for Instagram, YouTube, or Facebook. The tool's AI algorithm detects the focal point and crops the video accordingly.

In short, Adobe remains at the cutting edge of translating powerful AI into practical applications for its customers. More to the point, these new features should drive enormous revenue for Adobe, as some of them will require the purchase of generative AI credits. As a result, analysts expect Adobe to grow revenue to $21.8 billion in 2024, up 12% year over year.

ADBE Revenue (TTM) Chart

ADBE revenue (TTM); data by YCharts. TTM = trailing 12 months.

2. Palantir Technologies

Next up is Palantir Technologies(NYSE: PLTR). As a company that counts the U.S. Department of Defense and intelligence community among its clients, the specifics of Palantir's AI technology are necessarily opaque.

Nevertheless, what is clear is that Palantir's AI is extremely capable of sifting through enormous data sets to identify patterns that could be useful to intelligence, defense, and counterterrorism analysts. As a result, the company's government-derived revenue climbed to $308 million in its latest quarter (ending Sept. 30), up 12% from a year earlier.

It's not just governmental organizations that recognize the value of Palantir's AI. Increasingly, commercial organizations are turning to the company to analyze their data sets and provide insights. Commercial revenue grew 23% to $251 million.

In summary, the world is awash in data -- which is both a blessing and a curse. Palantir's powerful AI analysis can help organizations make sense of this sea of data, and so it's poised to grow by leaps and bounds. Analysts expect the company to grow sales by 20% in 2024 to $2.7 billion.

PLTR PS Ratio Chart

PLTR PS ratio; data by YCharts.

Granted, the stock is not for every investor. Palantir's lofty price-to-sales (P/S) ratio of 22 puts it out of bounds for many value-oriented investors. But for those growth-oriented investors willing to buy and hold, it's a name to remember.

3. Microsoft

No discussion of AI stocks would be complete without Microsoft(NASDAQ: MSFT). In fact, AI could be the catalyst that leads Microsoft back to the top spot in the list of most valuable American companies (its market cap of $2.8 trillion trails Apple by a couple of hundred billion).

First, let's address the elephant in the room: the recent chaos at OpenAI, the company behind ChatGPT. Microsoft, which has invested more than $13 billion in OpenAI over the last four years, appears to have been blindsided by the news that OpenAI's board of directors ousted CEO Sam Altman. However, in a wild turn of events, Altman is now set to return to his CEO post, while former U.S. Treasury secretary Larry Summers will head a new board of directors at OpenAI -- one that is, in all likelihood, far more supportive of Altman's vision.

While the full picture is still unfolding, it appears that the initial board of directors wished to impede Altman's strategy of quickly commercializing AI innovations. Yet it backfired on the board. Now, several of the directors have been replaced, Altman is back in charge, and Microsoft's partnership with OpenAI has only been strengthened. In short, Microsoft CEO Satya Nadella appears to have pulled off a major coup, not only solving a potential strategic crisis, but also turning it entirely in his favor.

In addition to Microsoft's OpenAI connections, the company has many other AI ventures that, while less well known, are still consequential. Specifically, the company's Azure cloud division uses AI in its cognitive services and machine-learning tools, which help developers build and improve cloud-based applications.

Microsoft remains an enormous player in the AI field. Combine that with its other outstanding business divisions and you have a recipe for a stock market juggernaut that shows no signs of slowing down.

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Jake Lerch has positions in Adobe. The Motley Fool has positions in and recommends Adobe, Apple, Microsoft, and Palantir Technologies. The Motley Fool recommends the following options: long January 2024 $420 calls on Adobe and short January 2024 $430 calls on Adobe. The Motley Fool has a disclosure policy.

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