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Why Computer Software Firms Rate As Top Artificial Intelligence Stocks

Investors looking for top artificial intelligence stocks should focus on computer software vendors Salesforce.com (CRM), Splunk (SPLK), Zendesk (ZEN), Appian (APPN) and Twilio (TWLO), because they can move quickly to improve existing products by layering on AI tools, says an analyst.

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William Blair analyst Bhavan Suri also includes Amazon.com (AMZN) in his list of artificial intelligence stocks. Amazon utilizes AI in consumer-facing products such as smart Echo-branded home speakers. It also uses AI in cloud computing services.

Suri estimates the value-added AI software market will grow to $15.07 billion by 2020, up from $1.56 billion last year.

“It is still early to gauge which companies can best leverage machine learning to create new revenue opportunities,” Suri said in a note to clients. “In our coverage universe we tend to favor a few application vendors, including Amazon, Appian, Salesforce, Splunk, Twilio, and Zendesk. Still, we expect AI to be an important aspect of the story for other vendors we cover, such as Alteryx (AYX), HubSpot (HUBS), and Tableau Software (DATA).”

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He says in other markets companies need to build AI products from scratch.

How AI Works

AI involves computer algorithms — software programs that aim to mimic the human ability to learn, interpret patterns, and make predictions.

“Since these technologies can be used in many different applications and industries, we expect AI to ultimately take the form of both a feature in enterprise software applications and as stand-alone products,” added Suri. “We expect AI as a feature to be more prominent, because application vendors should be able to quickly build associated capabilities directly into their existing offerings.”

While Suri follows software firms, chip makers such as Nvidia (NVDA) are also among the top AI stocks to watch.

Amid a broad sell-off in technology stocks this week, many computer software firms have taken a licking. The software sector trades at a high multiple to estimated revenue growth. That’s one financial metric analysts watch.

Salesforce.com, though, is holding up better than most enterprise software stocks. Salesforce.com still trades above its 50-day-moving average.

Splunk, a database and security software firm, has dipped below its 50-day line. So has Zendesk, a provider of customer-support software.

Salesforce.com closed up 1.4% to 135.12 on the stock market today. Amazon rose 2.5% to 1,701.45.

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