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Is the artificial intelligence stock market boom still wired or tired? Top AI stocks such as ( ) and ( ) face high expectations. For many companies — such as Google parent ( ), ( ) and Facebook parent ( ) — the rise of generative AI poses both risk and opportunity. Amid the emergence of — which generates text, images, and video — it's a good time to be cautious amid the hype, especially given at ( ). Meanwhile, startups OpenAI and Anthropic are battling Google, Meta and others in developing . has gained 37% in 2024 despite growing competition in internet search. OpenAI recently laid out more details of its plans to adopt a in 2025, amid negotiations with investor Microsoft and a feud with ( ) founder Elon Musk. Tesla stock has advanced 73% this year. AI Stocks: Nvidia Cooling Off Many companies suddenly tout AI product roadmaps. In general, look for AI stocks that use artificial intelligence to improve products or gain a strategic edge. Meanwhile, chipmaker Nvidia has been a bellwether for AI stocks. has jumped 176% in 2024 after surging 239% last year. But Nvidia stock has plateaued since early October but may have a . For Nvidia, ramping up production of next-generation Blackwell AI chips in 2025 has been a key issue. Rival ( ) soared on its . Broadcom makes custom AI chips for cloud computing titans. Meanwhile, ( ) makes cloud computing networking gear for Meta, Microsoft and others. Also, Arista stock has gained 92% in 2024. Meanwhile, data analytics software maker ( ) has bucked the trend that chipmakers are the best AI stocks. has soared 360% this year. Palantir stock ranks No. 3 in the roster of growth stocks. Microsoft is the biggest investor in generative AI leader OpenAI, having spent some $14 billion on the startup. Still, Microsoft stock has gained only 14% in 2024 vs. the S&P 500's 25% gain. Further, Nvidia-based is a new AI cloud infrastructure provider that plans an IPO in 2025. Key Issues For Top AI Stocks Meanwhile, Meta 's ( ) top AI executive, Clara Shih, to head a new "Business AI" group. Meta stock has gained 69% in 2024. Also, capital spending has boomed at cloud computing giants Amazon, Microsoft and Google. Tech giants are spending heavily on , such as AI chips and servers, as well as research and development. Capacity constraints in Microsoft's data centers are limiting its ability to meet demand, resulting in a slower growth forecast for its Azure cloud-computing business. Amid increased capital spending by cloud computing giants, the big question is how much incremental AI-related revenue they're getting. The cloud giants in the September quarter notched , indicating that AI investments may be paying off. Also, ( ) has been one of the top AI stocks to watch. Apple stock has gained 32% in 2024. The big question is whether Apple Intelligence features in iPhone 16 models will spur a big upgrade cycle. The best AI stocks to buy span chipmakers, software companies, cloud computing service providers and technology giants. What's clear is that AI stocks are under more scrutiny. "We expect AI to transition from a 'tell me' to a 'show me' story, with any disconnect between investments and revenue generation to come under increased scrutiny," said a Bank of America report. " Software Makers Pivot to AI Agents So far, the biggest demand for AI chips has come from cloud computing giants and internet companies. Broadcom, Qualcomm, ( ), and ( ) are other AI chipmakers to watch. Broadcom and Marvell make custom AI chips for cloud computing giants. In general, semiconductor plays have out-performed software companies as the best AI stocks. Many software companies, meanwhile, have yet to monetize AI products. One big issue for software companies is how fast customers ramp up pilot programs to commercial deployment. Having struggled to generate new revenue from "copilots," software companies are now turning to . Also, for most big application software companies, how to charge for AI-related products has been an issue. Many U.S. companies are pursuing custom AI software development projects, which will take longer to ramp up commercially. Also, AI technology uses computer algorithms. The software programs aim to mimic the human ability to learn, interpret patterns and make predictions. Until recently, machine learning was largely limited to models that processed data to make predictions. The AI models focused on pattern recognition from existing data. Corporate spending on AI projects was modest as companies mulled return on investment. AI Stocks To Watch By Industry Group New generative AI models process "prompts," such as internet search queries, that describe what a user wants to get. Generative AI technologies create text, images, video and computer programming code on their own. Companies will aim to boost productivity by developing customized AI for specific industries. Proprietary company data will be used to train AI models. AI systems require massive computing power to find patterns and make inferences from large quantities of data. So the race is on to build AI chips for data centers, self-driving cars, robotics, smartphones, drones and other devices. For chipmakers, analysts expect a market for "edge AI" — on-device processing of AI apps to emerge. While "training" AI models is now the biggest market for chipmakers like Nvidia, the market will shift to " ," or running AI applications, in the long run. Will AI Startups Challenge Tech Giants What's more, one key question for investors is whether tech industry incumbents will be the big generative AI winners. Or, will a new wave of AI startups eventually dominate? OpenAI has told employees its now on an annual revenue run-rate of $3.4 billion, up from $2 billion in January. OpenAI has raised $6.6 billion in new funding, , up from $86 billion early this year. The new round was led by venture-capital firm Thrive Capital. Microsoft again invested. New investors include SoftBank and Nvidia but not Apple as rumored. Large language models provide the building blocks to develop applications. Further, LLMs help AI systems understand the way that humans write and speak. Also, LLMs require training data for specific tasks. Companies with access to troves of data hold an edge. OpenAI is part of a wave of LLM startups that includes AI21 Labs, Anthropic and Cohere. Anthropic introduced Claude 3, the newest version of its chatbot, and claimed its performance is better than OpenAI's GPT-4. However, OpenAI's dominance faces a . Musk's xAI announced it will open source its Grok LLM, and released the source code for public use. Meanwhile, President-elect Donald Trump named former ( ) executive and Silicon Valley venture capitalist David Sacks . Further, Sacks is an associate of ( ) and SpaceX founder Elon Musk, who has emerged as a key advisor to Trump.
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