Artificial intelligence (AI) is having its moment in the sun.
Cathie Wood, CEO and co-founder of Ark Investment Management, recently released the firm's Big Ideas 2023 report and has come to a startling conclusion. After crunching the numbers, Wood and her team estimate that if AI vendors are able to realize just 10% of the value created by their products, AI software could produce $14 trillion in revenue by 2030.
With an opportunity of that magnitude, investors are poring over technology stocks, hoping to find an AI diamond in the rough. Here are three top stocks to buy now to profit from the AI revolution.
Image source: Getty Images.
1. Cybersecurity and AI: A match made in heaven
No matter where you turn these days, there's news of the latest hack, cyberattack, or data breach. The methods used to perpetrate these cybercrimes seem to evolve faster than the methods used to stop them. CrowdStrike (CRWD 4.12%) is on a mission to change that.
The cybersecurity specialist's Falcon platform has expanded from its humble roots in endpoint security to offer "the industry's most complete AI-powered threat protection." The cloud-based system leverages advanced AI and machine learning, training on 2 trillion data points every day -- and its AI gets smarter with each encounter.
In fact, the system actually stays ahead of the next attack by predicting behavior patterns based on its knowledge of previous attacks. The system continuously scans for suspicious activity, and while most issues are recognized and dealt with locally, more problematic or complex issues are fed into the proprietary distributed threat graph, which can detect and stop breaches within seconds.
As the result of aggressive expansion into peripheral areas, including cloud security, threat intelligence, identity protection, and managed services, among others, management expects its total addressable market to climb from $76 billion in 2023 to nearly $98 billion by 2025.
2. Increasing the stickiness of social media
Meta Platforms (META 2.05%) fell out of favor with investors in 2022 as economic headwinds weighed on the digital advertising business that generates the lion's share of its revenue.
Don't forget, however, that the company maintains a veritable treasure trove of user data and preferences from the 2.96 billion people that frequent its social media platforms every day and 3.74 billion that drop by monthly. Meta has long leveraged AI to measure engagement and more effectively target its digital ads while also serving up content more relevant to its audience.
The company recently wowed marketers with an AI-driven tool dubbed Advantage+. Meta's platform chooses between various ad formats and targets audiences, relying on automation and machine learning to more accurately identify those most likely to respond to the ads. Advertisers have experienced stronger conversion rates and better ad efficiency, dramatically improving Meta's success.
Late last year, Meta revealed that advertisers that used Advantage+ reported that cost per customer acquisition improved by 17%, along with a 32% increase in return on ad spending. This suggests that Meta is well positioned to rebound when advertising rebounds in the months to come -- thanks to its AI expertise.
3. Disrupting the lending industry
There are many ways to boost revenue with the aid of AI, and one of the most lucrative is analyzing information to develop more efficient and effective techniques. With AI at its core, Upstart (UPST -1.68%) is looking at a decades-old process in a new light. By replacing outdated methods with automation and data, the fintech company is well on its way to upending the consumer lending paradigm.
Many consumers complain that they can't get credit because they don't have credit, a glaring flaw in the existing system. Upstart has rewritten the rules, using sophisticated algorithms to analyze more than 1,600 variables that provide a more accurate assessment of creditworthiness than traditional rules-based systems.
In doing so, Upstart provides greater access to credit without increasing default risk. One study showed that Upstart's methodology approved 173% more loans while achieving the same loss rate as traditional models. What's more, since this is AI, the more loan candidates it assesses, the smarter and more accurate its system becomes.
Upstart has just begun to disrupt the consumer lending industry and is chasing a massive market opportunity. The company is using the same template that has proven successful in the personal loan business and has designs on the auto loan, mortgage, and small business lending markets. All told, this represents a total addressable market of $5 trillion in loan originations. To put that number in context, Upstart's AI originated 154,478 loans worth $1.5 billion last year, leaving plenty of opportunity for growth.
