The Best Unknown Artificial Intelligence Stock
The rate of technological innovation in the last decade or so has been rapid.
As only a few examples, 10 years go none of the following companies existed.
• Zoom – video conference technology
• Lyft – car transportation/travel
• Juul – e-cigarettes
• Door Dash – Food delivery
• Instacart – Grocery delivery
• Robinhood –Stock trading
• Instagram – Social network
These companies are called “Tech Unicorns.” And they’ve come on the scene in the last decade. Took over their industries. And transformed the world.
EDITOR’S NOTE – The term Tech Unicorn means a tech company was founded in the 2000’s+ and then grew to a $1+ billion valuation.
You no longer must leave your house to interact with people around the world in seconds.
You no longer must go to the grocery store and deal with lines and rude people.
And you can summon a car to take you places in seconds on your phone.
Most of this was unthinkable 10 years ago.
But now they’re part of our everyday lives.
And they’re becoming even more important as we’re locked in our houses away from our friends and family during these coronavirus times, we’re now living in.
In the coming years technology will change even faster with the implementation of The Internet of Things.
The Internet of Things is a time when almost everything we interact with daily will have microchips and sensors in it.
These sensors and chips will spit out data to us to help us improve potentially every aspect of our lives.
From helping get rid of rush hour traffic.
To helping us spot a health issue before it causes major problems in our bodies.
To spotting potential pandemics before they spread around the globe.
To making sure our food is fresh.
The Internet of Things will hook almost everything in our lives to the internet.
These will change us and our lives in both positive and negative ways.
The Internet of Things is already being built. But it will accelerate even more because of our increasing reliance on technology in these coronavirus and social distancing times we’re dealing with now.
In the coming years and decades there will be many stocks that turn into huge winners from the Internet of Things.
But I don’t recommend you invest in smaller Tech Unicorns in the hopes of catching the ride up.
Not because some of them won’t succeed massively.
But because I think it will be almost impossible to spot the winners and invest in them before they skyrocket. While also avoiding the ones that fail miserably and go bankrupt.
I want to bet on solid companies over the long term… Ones that have solid balance sheets and are profitable today.
Not ones “hoping” to earn profits at some undetermined time in the future.
Today I want to show you one stock that will benefit enormously from the Internet of Things… While also being a great company now.
Why Xilinx Is One Of The Best AI Stocks
If you don’t recognize this log you’re not alone.
Xilinx (XLNX) is the creator of and still “a leader in the field-programmable gate array (FPGA) industry.
FPGA’s are hardware circuits that someone programs to carry out one or more operations based on the programming language that’s been input.
Here’s a real-world example of the usages of FPGA’s taken from the FPGA’s for Dummies book…
“a rear-view camera for a car. In the example, a camera might take 250 milliseconds to capture and display an image to the driver. If regulations change to require that the window of time be only 100 milliseconds, the car could require costly and near-impossible alterations if the camera relied on a microprocessor-based solution. With an FPGA though, the new regulation could be met and implemented without new hardware or new processors. Cars in production, unsold cars, and cars already sold could be updated with a simple reprogramming of the FPGA. You’ve seen the logo above over the years. And have used its products in your PC’s and other devices.”
Think of these like CPU’s in a normal electronic device but they allow much more functionality if you expect things to change at all in an industry.
And things change fast in the tech arena, so these are becoming even more popular.
One area is artificial intelligence (AI).
No not Skynet… At least, I hope.
But AI in terms of seeing things that humans either can’t see in data and information… Or things that would take humans – or “normal” CPU’s – would take too long to decide with.
Imagine this used to get rid of rush hour traffic congestion.
Say traffic get to 100% of normal levels at an intersection…
If this happens you could program the FPGA to see this with AI, sensors, and data to then help instantaneously make the decision to reroute future traffic elsewhere via GPS signals in people’s cars. Or by making the traffic lights slow people down so much that they’re forced to go a different route.
This sounds futuristic because it is… But it’s also coming faster than you think too.
Another usage of FPGA’s today is the advanced drive assistance systems or (ADAS) systems in many recent vehicles.
One example is the lane sensor assistance when you go out of a lane or try to merge, and a car is there… If the car “sees” this in its sensors and data, the car automatically jerks you back into your lane or beeps loudly at you so you can do so.
These are ADAS systems already in usage… And they’re built with FPGA’s
Soon when everything is spitting out data and you need to process information fast an FPGA will become ultra-valuable in many situations.
And today I’m recommending you look at Xilinx stock because its not only the leader in this arena… Its also the creator of FPGA’s.
And this allows the company to earn enormously profitability and cash flow…
Over the last 10 years it earned a total of $7.5 billion in total operating profit against a market cap of $24.1 billion as of this writing. And its operating profit margin over the last decade has averaged 30.2% per year.
I look for any company to produce above 10% margins on a consistent basis to consider as an investment.
Its produced $8 billion in total free cash flow in the last 10 years. And its FCF/Sales margin averaged 31.9% every year in this time.
On this metric I look for anything above 5% on a consistent basis.
Both metrics show that not only does it earn huge profits from its operations. But also, that it has more than enough money to reinvest in R&D to build out the things necessary to take advantage of the new technologies to continue its dominating in the Internet of Things.
Plus, it pays an 1.5% dividend just to own its shares.
Xilinx is an amazing company… But it does have one problem right now… Its overvalued.
Its current P/E is 31.7.
Its current P/CF is 21.1.
And its current forward P/E is 34.3.
I consider buying companies that have ratios below 20 on all these, so for now I recommend putting Xilinx on your watchlist and buying it when it’s cheaper.
Not only because it’s a fantastic company now. But also, because it will benefit greatly from the increased usage of FPGA’s as the Internet of Things continues being built out over the next 20 years.
Xilinx is a fantastic company.
Its dominated its industry for decades which allows it to earn enormous profits.
This allows the company to reinvest its capital into R&D to continue staying ahead of competitors.
And this allows it to transition well into The Internet of Things arena so it dominates that too.
If you’re looking for a great Internet of Things and AI stock to own don’t look to buy one of the tiny companies and hope you get a tech unicorn… Yes, some of them will explode to huge success in time. But many others will implode and go bankrupt.
It will be near impossible to tell which is which in the coming years.
But one thing is for sure, Xilinx will still be around. It will still dominate. It will still generate enormous profits and cash flows. And it will continue compounding the value of your investment well into the future.
But be patient and wait to buy Xilinx when you can do so at a cheaper price.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.