Artificial intelligence (AI) has been making headlines recently, and it seems that all the big-name tech companies are getting into the act. AI has been the linchpin of a number of recent technological advancements including voice recognition, language translation, and facial recognition. With the adoption of AI technology across an increasing list of industries, growth in the field is expected to accelerate. The AI market is forecast to grow from $4.8 billion in 2017 to an estimated $261 billion by 2027, according to a report by Persistence Market Research.
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It is important to remember that the technology is still in its infancy and we don't yet know which companies stand to benefit the most from the AI revolution. Investors looking to capitalize on these technological innovations while lowering their risk may want to consider investing in dividend payers that are also at the cutting edge of AI research. Here are five companies that fit the bill.
International Business Machines Corporation (NYSE: IBM) has been dabbling in AI research for years, but came to the forefront in 2011, when its AI-based cognitive computer Watson dethroned 74-time Jeopardy! champion Ken Jennings. Watson has since become the public face of the company's AI efforts. IBM has used its AI capabilities to help prepare tax returns, tackle gene sequencing to fight cancer, and improve cybersecurity.
Investors have been wary of Big Blue after 22 consecutive quarters of year-over-year revenue declines, but results have been improving and growth could return as early as next year. In the interim, the dividend yields a hefty 3.9%, while IBM is paying out a healthy 48% of its profits. The company has raised its quarterly payout for 22 consecutive years, and has been paying a dividend every year since 1916. IBM has also been repurchasing its stock, reducing the outstanding share count by 18% since 2012.
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Intel Corporation (NASDAQ: INTC) made its fortune creating the processors that are found in most personal computers. The company has recently been making aggressive investments in the AI space, acquiring a number of AI start-ups over the last several years. It made headlines earlier this year when it spent $15.3 billion to acquire Israeli computer-vision company Mobileye N.V. to move into the self-driving-car market. It previously purchased deep learning start-up Nervana and is working on an application-specific integrated circuit (ASIC), a chip that will be optimized for AI operations.
Intel has been paying a dividend every year since 1992 and recently increased its payout by 5%. The dividend currently yields 2.3% and has a relatively low payout ratio of 36%, leaving the company options for future increases. Intel has also been buying back stock and has reduced its share count by 5.4% over the last five years.
Making smartphones smarter
Apple Inc. (NASDAQ: AAPL) is best known for its flagship iPhone and Mac computers, but the company is also on the cutting edge of AI research. With the release of the iPhone 8 and iPhone X, the company debuted the A11 Bionic chip, a processor designed specifically with AI applications in mind. The chip contains a neural engine -- a pair of cores dedicated to AI, as part of a "six-core CPU design" with a performance controller that can engage all six cores simultaneously.
Apple has also been extremely shareholder-friendly over the last several years. The company began paying a quarterly dividend again in 2012, its first payout since 1995. Earlier this year, the company raised its payout by 10%, marking the fifth consecutive year of increases. The dividend currently yields 1.4% but has a payout ratio of only 26%, leaving plenty of room for future increases. The company has also been buying back shares and has decreased its shares outstanding by 22% over the last five years.
Office and more
Microsoft Corporation (NASDAQ: MSFT) has long been a staple on the computer scene thanks to its ubiquitous Windows operating system, Explorer internet browser, and Office productivity software. Over the last few years, the company has become one of the fastest-growing competitors in the cloud computing space and has been integrating AI into an increasing number of its products and services.
Microsoft has paid a dividend every year since 2004, and raised its payout earlier this year by 7.6%, marking the seventh consecutive year of increases. The dividend currently yields 1.8%, and the company is paying out only 52% of its profits. With increasing profitability and cash flow, the company is well positioned to continue raising its dividend in the coming years.
The chip that made AI possible
No discussion about AI companies would be complete without including NVIDIA Corporation (NASDAQ: NVDA). The massive parallel processing capability of the GPU that revolutionized gaming turned out to be extremely effective for training AI models. NVIDIA has leveraged its position as the leading provider of GPUs and has ridden the wave of AI adoption to record heights, and the stock is up 80% this year alone. Its data center revenue from AI has skyrocketed, producing triple-digit year-over-year growth for six consecutive quarters.
It is important to note that NVIDIA is the riskiest of these picks and also has the lowest yield. NVIDIA only began paying a dividend in 2012, and while it has raised its payout five times since, it still yields a paltry 0.3% -- though that is the result of the company's escalating stock price, which is up an astonishing 1,400% over the same time frame. With a below-average payout ratio of only 13%, the company has ample opportunity to increase its dividend, though investors should anticipate measured increases over the coming years, as the company continues to invest heavily in growth.
AI and income
No one knows what innovations will result from future AI research, or what company will stand to gain the most. Each of these companies provides investors a way to benefit from the potential explosive upside afforded by AI while receiving regular income payments as they wait.
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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Danny Vena owns shares of Apple and has the following options: long January 2018 $25 calls on Intel. The Motley Fool owns shares of and recommends Apple and Nvidia. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.