The last month of the year is often used for investors to shift their portfolio focus or reconsider a strategy. At the end of 2023, many investors are likely looking back and seeing they don't have enough exposure to one of the most important business shifts we have experienced: artificial intelligence (AI) implementation.
So, if you're looking for some AI stocks to buy for December, here are some that I'll be buying.
1. UiPath
UiPath (PATH 1.37%) has products focused on robotic process automation (RPA). This software allows users to automate repetitive tasks, but it isn't necessarily AI technology. However, UiPath integrates AI into its products to make automation smarter, increasing the data input types and the reach of what is possible to automate.
Adoption of UiPath's products has been strong, with annual recurring revenue (ARR) rising 25% to $1.3 billion for the second quarter of fiscal year 2024 (ended July 31). But what's even more telling is its net retention rate of 121%, which means customers spent $121 for every $100 UiPath spent last year. This shows that once customers sign on with UiPath, they continue to utilize the product more by buying additional functionalities or licenses.
NYSE: PATH
Key Data Points
UiPath is a strong AI pick for 2024, and it can be purchased for just 9.2 times sales, which is much cheaper than some of its AI peers trade. With other backers like Cathie Wood and Ark Invest devoting a significant portion of their portfolio to UiPath, it's a top AI stock to buy now.
2. Adobe
Adobe (ADBE +0.15%) may not be top of mind regarding artificial intelligence. Still, its latest offering says otherwise. Adobe Firefly is just one of its AI products, although it's the one that receives the most attention (and promotion). Firefly is Adobe's generative AI product, allowing users to create or modify images with just a text input. This has wide-scale usage from initial media creation to tweaking the image for an individual.
Even beyond AI, Adobe is doing quite well. Revenue grew 10% year over year in the third quarter of fiscal year 2023 (ended Sept. 1), and earnings per share (EPS) rose by 29% thanks to disciplined expense growth and the effects of share repurchases. Adobe is a very dependable and mature company, and its expansion into AI gives it further upside.
As a result of Adobe's strong execution, the stock demands a hefty premium.
ADBE PE Ratio data by YCharts.
Although its trailing price-to-earnings (P/E) ratio is nearing its historical highs, its forward valuation is still quite low, indicating strong earnings growth for next year. I doubt Adobe will stay flat over the next year due to its earnings growth, so I'm confident that the stock still has plenty of room to run in 2024 and beyond.
3. ASML
ASML (ASML +0.50%) is a critical supplier in the semiconductor industry, although few know about it. ASML manufactures EUV (extreme ultraviolet) and DUV (deep ultraviolet) lithography machines, which are used to etch patterns on microscopic chips. Its EUV machines get a lot of publicity, as ASML's are the only products in the world that can etch the smallest microchips (7 nanometers and smaller). This gives ASML a technological monopoly on its products, making it very lucrative to invest in.
ASML also has strong financials, showcasing the demand for its products. In Q3, sales rose 15% year over year while it only sold 112 systems for 2.6 billion euros. With its strong cash flows, ASML rewards its shareholders with repurchases and dividends. Although it pays a fairly small 0.9% dividend, its repurchases have decreased the shares outstanding by 6% over the past five years.
ASML Shares Outstanding data by YCharts.
With the stock trading at 33 times earnings, it looks like a great buy, especially considering ASML's long-term track record and the demand for high-powered chips that only its machines can produce.
