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AI stocks celebrate record profits: These companies stand out!
Current analysis: AI stocks experience record profits in Q3 2023. 38 stocks outperform the market while some suffer.
AI stocks celebrate record profits: These companies stand out!
Artificial intelligence (AI) stocks posted impressive record gains in the third quarter of 2023. A basket of 38 AI stocks selected by Morningstar analysts rose 15.7%, following an already strong gain of 27.3% in the previous quarter. This development exceeds both the total return of the stock market, which was 7.7%, and that of the technology index, which was 11.7%.
The best performers within this AI basket include Corning GLW, up 53.3%, and Teradyne TER, up 49.5%. Overall, 66% of the 38 stocks closed higher, with 15 stocks posting gains of over 20%. The majority of these outperformers come from the technology sector, while some also come from communications services and industrials. The AI basket is currently trading at a 16% premium to Morningstar's fair value estimate.
Market analysis and key players
The basket represents a broad cross-section of the AI universe, with much of the focus on hardware companies. The larger companies in the basket also include hyperscalers such as Amazon.com AMZN and selected software companies such as Salesforce CRM. Other notable performers in the AI basket include Arista Networks ANET, up 40.13%, and Alphabet GOOG, up 37.88%. Samsung Electronics also saw a 40.8% increase.
Despite the positive developments, there were also some losers. Seven of the 38 stocks ended the reporting period in the red. Particularly notable were Salesforce with -9.96%, ServiceNow NOW with -8.48% and Adobe ADBE with -7.1%. Adobe is under pressure from emerging generative AI and increasing competition. Salesforce, in turn, sees generative AI as a serious threat to its core business, particularly in the area of customer service.
Appreciation and future prospects
While the average price-to-fair value ratio rose to 1.16 in the third quarter (from 0.99 in the second quarter), Morningstar's analysis also highlights Alphabet's tech youth. Alphabet is rated four stars while its fair value is estimated at $237. The closing price on June 13, 2025 was $175.88, representing an upside potential of approximately 34.75%.
Google, a subsidiary of Alphabet, is considered a pioneer in the AI sector. Investments in AI aim to protect Google Search and use generative AI to improve search quality and advertising business with more relevant ads. Going forward, increased use of AI is seen as a key growth driver for Google Cloud Platform (GCP) over the next five years. Alphabet operates in several business areas, including advertising, cloud computing and self-driving cars.