Almost everyone knows that artificial intelligence (AI) is taking hold in many aspects of our lives. What most people are referring to when they say AI is actually machine learning (ML) – the use of algorithms to mimic the way humans absorb information and gradually learn to make more accurate predictions. Some companies do better than others.
Three that are doing well are currently trading at attractive valuations. Reached ( UPST -2.06% ), Microsoft (MSFT 0.62% )and JP Morgan hunt (JPM -0.30% ) are all market leaders investing heavily in AI innovation. It could be a good time to buy stocks. Here’s why.
Upstart is trying to kill the credit score. More specifically, it is about proving that the traditional tool for evaluating credit decisions is obsolete. The company uses AI and ML to help banks better assess potential borrowers. If banks can find customers that traditional models would have deemed risky but aren’t, they can increase their revenue without incurring more defaults. It’s like discovering a completely untapped market right under your nose.
So far it works. The partnership with Upstart has allowed banks to lend to more borrowers at a lower interest rate. It’s great for everyone. That’s why the Consumer Financial Protection Bureau issued a no-action letter blessing the company’s approach.
Upstart expands access to credit, especially for those with limited credit histories. The bureau’s tests found that applicants under 25 were 32% more likely to be approved for a loan. They weren’t risky; they simply hadn’t borrowed enough in the past to satisfy the credit bureaus.
The model uses over 1,500 variables and balances the bank’s desired fees and acceptable risk with the potential for fraud, prepayment and other applicant outcomes. It has been steadily improving since 2014. This is two years after the creation of Upstart by Dave Girouard, a former executive of Google and Apple.
So far, the company has been a resounding success. Revenues in 2021 increased by 264% compared to the previous year. And the company generated both earnings and free cash flow. He expects to do the same this year while increasing his sales by at least 65%.
Despite this, the stock is at 75% of its highs. It’s one of many hypergrowth stocks that have been crushed this year. For volatility-loving investors, the current free cash flow multiple shows that now may be the time to add them to a diversified portfolio.
With a market capitalization of over $2 trillion and $125 billion in cash on its balance sheet, it makes sense that this tech titan would invest heavily in artificial intelligence. He is. The company known for its productivity software, cloud services and games is second only to IBM (and in front Alphabet‘s Google) with more than 2,200 AI patents.
Microsoft is clearly committed to leading with AI. Two of its five product development groups – Cloud and AI, as well as AI and Research – focus on the application of technology. It is also developer-focused. Microsoft bought popular open-source code repository GitHub last year for $7.5 billion. And its Azure machine learning studio and ML model builder help turn every developer into an AI professional.
Microsoft is also leveraging AI to push further into healthcare. It recently completed the acquisition of natural language processing (NLP) company Nuance Communications, a major player in text-to-speech software for healthcare. An example of how this technology could be applied is the company’s support for cancer research. It uses ML and NLP to help oncologists identify a personalized treatment plan by sifting through all available research and data. He also pairs ML with radiologists to better understand tumor growth.
The stock may not be in the bargain, but it is trading at the lower end of the price-to-sell (P/S) range established at the start of the pandemic. Analysts expect earnings of $9.34 per share for this fiscal year, which ends in June. This means that the current share price of $300 will be the lowest P/S ratio since the initial recovery from the coronavirus selloff. In a turbulent market, it’s hard to find a more reliable company that consistently produces cutting-edge technology.
3. JPMorgan Chase
Aside from a catchphrase, the largest financial institution in the United States does not mention AI or ML in its latest annual report to the Securities and Exchange Commission. But that doesn’t mean it’s not a key part of the bank’s strategy. The company has businesses that span investment banking, retail banking, consumer lending, credit cards, wealth management, and more. This generates a lot of data. And making the most of that data means keeping it ahead of its peers.
The bank uses AI and ML to price transactions, detect anomalies in spending to detect fraud, evaluate research methods and how to help portfolio managers best process new information. The company is also applying AI to better understand customer requests and offer intelligent assistance to improve customer service.
The stock followed the S&P500 index over virtually any period since the financial crisis of 2008-2009. Low interest rates are not good for banks. And even though interest rates are now rising rapidly, the combination of inflation, geopolitical instability and higher regulatory capital requirements have led to a relatively bleak outlook in CEO Jamie Dimon’s annual letter to shareholders. .
Still, with JPMorgan’s price-to-book ratio back close to its pre-pandemic level despite much higher earnings, it’s time to take notice.
Add to that the fact that the stock is near its 52-week low, and it looks like a bargain. If you’ve been wanting to buy blue chip bank shares with a 3% dividend while they’re down, now is the time.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.