Artificial intelligence, or self-learning software, is going to change the world and investors should position themselves to benefit from the trend, according to a top Wall Street firm.
JPMorgan's research team shared its top AI stock ideas in a note to clients Monday.
"We are at a pivotal point for its adoption today due to the availability of big data, high-powered computing and advances in algorithms – which all make AI cheaper and faster to implement," analyst Stacy Pollard wrote in the report. "AI tools will be intimately linked with the overall digital transformation going on now within businesses, and AI is likely to be embedded in numerous technology applications within a few years."
Pollard noted the AI-related hardware, software and services market will grow to $58 billion by 2021 from roughly $12 billion this year.
"We believe AI functionality (direct or embedded) will take market share within the IT budget, and therefore vendors that are ahead of the curve in embedding AI will benefit," she wrote.
Here are five overweight-rated companies JPMorgan recommends that will benefit from AI adoption.
1) Facebook (FB)
The firm's price target for Facebook shares is $225, which is 23 percent higher than Monday's closing price.
"Mark Zuckerberg considers AI to be one of the company's 10-year bets, and believes that AI should replicate—and exceed—human senses such as vision and hearing so that FB is better able to serve users. … FB is working on applying computer vision techniques to organize content and provide the ability to classify live videos in real time."
2) Oracle (ORCL)
JPMorgan gives Oracle shares a price target of $55, which is 13 percent above Monday's close.
"Apart from using AI and Machine learning across many parts of its cloud applications, Oracle is now using AI and machine learning to automate administration of its latest Oracle Database 18c making it a self-driving or autonomous database. This new database is expected to automatically provision, upgrade, patch and tune without any downtime, eliminating a lot of human labor as well as human error."
3) Palo Alto Networks (PANW)
The firm's $182 price target on Palo Alto Networks shares is 21 percent higher than Monday's close.
"The company has focused the use of machine learning into its endpoint protection solution called Traps. In fact, the use dates back prior to the acquisition of Traps and has been enhanced through the acquisition of LightCyber earlier in 2017 … Similar to FireEye, the company is also using the approach in its cloud-based intelligence and analytics area as a foundation for the log collection and analysis it is providing to customers."
4) Workday (WDAY)
JPMorgan gives Workday shares a price target of $120, which is 4 percent higher than Monday's close.
"AI is an integral part of the Workday system and surfaces in terms of intelligent recommendations to predictive analytics across HR as well as Finance. The move toward incorporating AI started in 2015 with the acquisition of Identified and was augmented more recently by the acquisition of Platfora. Workday uses AI for predictive analytics across its solution from predicting employee turnover to recommending learning modules on the HCM side to predicting customer collections and using AI to create financial forecasts on the Financials Management side."
5) Twilio (TWLO)
The firm's $40 price target on Twilio shares is 55 percent above Monday's close.
"Twilio announced the GA (general availability) of its Speech Recognition capabilities in Oct 2017, which enables users to convert speech to text and analyze intent during any voice call. Twilio's Automated Speech Recognition uses Google's Cloud Speech API, which supports various languages."