Here are analysts’ 20 favorite AI stocks — and they still see upside for Nvidia

Alibaba and Nvidia both passed a screen of 269 stocks held within artificial-intelligence ETFs. GETTY IMAGES, ISTOCKPHOTO

So far, 2023 has been the year of artificial intelligence in the stock market. Nvidia Corp. has been the poster child, with shares returning 178% this year with dividends reinvested. Believe it or not, analysts working for brokerage firms as a group still believe it is a good time to buy the stock, as you can see in the results of the screen below.

On Monday we took a hard look at valuations for Nvidia’s NVDA, -0.37% shares, while comparing returns on invested capital for 60 semiconductor manufacturers. This is now an expensive stock, based on price-to-earnings and price-to-sales ratios, however, the company has been a solid financial operator for years.

Today we’re surveying the broader artificial-intelligence landscape to screen a large list of stocks. Investors can argue about how to define an “AI company,” and these five exchange-traded funds take different approaches to defining the term, selecting stocks to hold and how to weight them in their portfolios:

• The Global X Robotics & Artificial Intelligence ETF BOTZ, +0.80%  holds 43 stocks, according to FactSet. It tracks an index of companies listed in developed markets. The companies are expected to benefit from the increased utilization of robotics and artificial intelligence. The fund is weighted by market capitalization and its largest holding is Nvidia, which makes up 12% of its portfolio. It was launched in 2016 and has $2.4 billion in assets under management.
• The iShares Robotics and Artificial Intelligence Multisector ETF IRBO, +0.25%  holds 116 stocks that are equal-weighted when the fund is reconstituted annually and rebalanced twice a year. IRBO tracks a global index of companies that derive at least 50% of revenue from robotics or AI, or have significant exposure to related industries. This ETF was established in June 2018 and now has $406 million in assets.
• The First Trust Nasdaq Artificial Intelligence & Robotics ETF ROBT has $362 million in assets and holds 107 stocks, with a modified weighting based on how directly the companies are involved in AI or Robotics. It was established in February 2018.
• The Robo Global Artificial Intelligence ETF THNQ has $47 million in assets and was established in May 2020. This fund holds 68 stocks and isn’t concentrated. It uses a scoring system to weigh its holdings by the percentage of revenue derived from AI, with holdings also subject to minimum market capitalization and liquidity requirements.
• The WisdomTree Artificial Intelligence and Innovation Fund  WTAI, +0.82% was established in December and has grown to $105 million in assets under management. It holds 77 stocks in an equal-weighted portfolio. According to FactSet, stocks are handpicked and selected companies “generate at least 50% of their revenue from AI and innovation activities, including those related to software, semiconductors, hardware technology, machine learning and innovative products.”

Altogether, the five ETFs hold 269 stocks listed around the world. Narrowing down the list, there are 199 companies with market capitalizations of at least $2 billion that are covered by at least five analysts working for brokerage firms polled by FactSet.

Read more: Alibaba’s stock is ‘still very cheap,’ but Bernstein now wonders if it’s a value trap 

Among the 199 remaining companies, 79 are held by at least two of the five ETFs.

Here are the 20 remaining companies rate “buy” or the equivalent by at least 80% of the analysts, sorted by 12-month upside potential based on consensus price targets:

CompanyTickerCountryShare “buy” ratingsJune 26 priceConsensus price targetImplied 12-month upside potentialHeld by Alibaba Group Holding Limited ADRBABA,-2.41%China87%85.47135.5359%ROBT, THNQJD.com Inc. ADR Class AJD,-3.22%China84%34.9754.1555%ROBT, THNQTencent Holdings Ltd.700,-1.52%China91%332.80435.0331%IRBO, ROBTMobileye Global Inc. Class AMBLY,+0.24%Israel90%36.0046.9530%ROBT, WTAINice Ltd. ADRNICE,+0.76%Israel92%202.48260.6429%ROBT, THNQCargotec Oyj Class BCGCBV,+0.40%Finland83%49.9063.6027%BOTZ, ROBTCrowdStrike Holdings Inc. Class ACRWD,+0.50%U.S.85%141.81175.7324%THNQ, WTAISony Group Corp.6758,+2.57%Japan85%12,990.0016,053.4124%IRBO, ROBTSamsung Electronics Co. Ltd.005930,+0.14%South Korea95%72,400.0084,764.7017%IRBO, ROBT, WTAIATS Corp.ATS,-0.13%Canada100%59.3668.7716%BOTS, IRBO, ROBTAlphabet Inc. Class AGOOGL,+1.46%U.S.85%118.34131.6011%IRBO, ROBT, THNQ, WTAINvidia Corp.NVDA,-0.37%U.S.84%406.32451.5311%BOTZ, IRBO, ROBT, THNQ, WTAITaiwan Semiconductor Manufacturing Co. Ltd. ADRTSM,-0.41%Taiwan92%100.11109.9910%ROBT, WTAISynopsys Inc.SNPS,+0.09%U.S.93%417.21458.1510%ROBT, WTAIDenso Corp.6902,+3.51%Japan89%9,264.0010,158.8210%ROBT, WTAIKeyence Corp.6861,+2.81%Japan83%67,860.0074,106.259%BOTZ, ROBTAmazon.com Inc.AMZN,+1.08%U.S.91%127.33138.899%IRBO, ROBT, THNQ, WTAIMicrosoft Corp.MSFT,+0.73%U.S.84%328.60345.845%IRBO, ROBT, THNQ, WTAIServiceNow Inc.NOW,+1.14%U.S.92%537.97551.122%ROBT, THNQ, WTAIPalo Alto Networks Inc.PANW,+0.76%U.S.88%243.80248.002%ROBT, THNQSource: FactSet

Click on the tickers for more about each company, ETF or index.

Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

Stock prices and price targets are in local currencies where the stocks or American depositary receipts are listed.

Alibaba Group Holding Ltd. BABA, -2.41% tops the list, with a consensus price target 59% higher than the closing price on Monday. But the stock was downgraded on Tuesday by Bernstein analyst Robin Zhu, who sees a “value trap.”

Nvidia is one of only two of our starting list of 269 stocks held by all five ETFs. The other is Cognex Corp. CGNX, -0.40% which didn’t pass the screen because only 21% of analysts rate the shares a “buy” or the equivalent.

Keep in mind that stock analysts working for brokerage firms are fixated on 12-month targets. One year can be a short period for a serious, committed investor, especially when looking at a budding industry. That said, any stock screen can only serve as a starting point for your own research. Before investing in any individual stock, you should do your own research to form your own opinion about how competitive the company is likely to be when providing goods and services over the next decade or longer.

***This is an original Market Watch article***