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  • Mar 1, 2023 - Top 5 Artificial Intelligence Stocks to Add to Your Watchlist

Top 5 Artificial Intelligence Stocks to Add to Your Watchlist

Mar 1, 2023

Top 5 Artificial Intelligence Stocks to Add to Your Watchlist

Digital adoption continues to evolve at a tremendous speed. This has helped the IT sector establish itself as a crucial element of business and not just a source of cost efficacy.

The Covid-19 crisis has reshaped the globe significantly. It has resulted in years of change in the way companies do business, with a shift in technology adoption and digitization.

The pandemic has fast-forwarded the adoption of digital technology by almost 3 to 4 years.

Organizations are adapting to futuristic technologies faster than ever. Their purchasing and investing preferences have shifted to areas such as cloud computing, seamless customer experiences, the Internet of Things (IoT), and Artificial Intelligence (AI).

Over the last few years, AI and Machine Learning (ML) have driven significant productivity across industries.

They have revolutionalised the healthcare, finance, agriculture, education, and transportation sectors. These technologies have proved crucial in illness detection and diagnosis, identification of patients for clinical trials, medication manufacture, and predictive forecasting.

While the list of AI stocks in India is limited, the industry is rapidly growing. In addition to established tech giants like Tata Consultancy Services, Infosys, and Wipro, many other companies are working on AI solutions in India.

Here, we highlight the top 5 AI stocks with the help of Equitymaster's Indian stock screener.

#1 Tata Elxsi

At the top of our list, we have Tata Elxsi.

Tata group company Tata Elxsi is a medium-sized IT firm well-known for its design and engineering capabilities.

A large chunk of the revenues (87%) come from designing products for the broadcast & communication, transportation and medical sectors.

The company enjoys a well-diversified client base across the world. 42% of its revenues stem from the US, 30% from Europe, 16% from India and the balance from other parts of the world.

The products designed by the company have become an integral part of the numerous devices we use daily. These include home appliances, mobile phones, cars and vehicles (especially electric vehicles), medical equipment, and more.

But the most promising segment of the business is one of its smaller segments, the Internet of Things or IoT.

The IoT is a network of interrelated and internet-connected objects. It can collect and transmit data over a wireless network without human intervention.

It is expected that the Indian IoT market could grow at a CAGR of 13.9% between 2022-2027.

Under this segment, Tata Elxsi helps customers reimagine their products and services through design thinking and the application of digital technologies such as cloud, mobility, VR, and AI.

This trait makes Tata Elxsi a strong contender, well-poised to ride the swelling wave in the AI and the IoT space.

The company's stellar financial performance has surpassed all growth expectations. This growth is mirrored in the phenomenal returns the stock has generated in a short period of time.

Tata Elxsi Financial Snapshot (2018-2022)

  2017-2018 2018-2019 2019-2020 2020-2021 2021-2022
Revenue Growth (%) 13.97% 14.62% 2.08% 11.43% 34.80%
Operating Profit Margin (%) 28.14% 28.78% 25.01% 30.85% 32.84%
Net Profit Margin (%) 17.32% 18.16% 15.91% 20.16% 22.25%
Return on Equity(%) 37.04% 34.50% 25.20% 30.15% 37.23%
Data Source: Ace Equity

The big tech company's revenues and profits have more than doubled in the past five years. They have grown at a 5-year CAGR of 17% and 25%, respectively.

The return ratios have also been strong, averaging 30% in the past five years.

Apart from this, the company has no debt on its books, allowing it to reward its shareholders with consistent dividend payouts.

To know more about Tata Elxsi, check out its financial factsheet and latest financial results.

#2 Happiest Minds

Next on our list is Happiest Minds.

Happiest Minds Technologies is a mid-sized IT firm that provides digital transformation and technology services. The company operates in a wide array of segments and digital revenues account for over 96.5% of the business, while the balance comes from other smaller segments.

Digital revenue includes digital infrastructure/cloud (45% of the total revenues), SaaS (20%), security (13.4%), analytics and artificial intelligence (12.5%), the internet of things (5%).

A key focus area in which Happiest Minds specializes is AI. The company offers a range of AI services and solutions, including:

  • Cognitive computing offers natural language processing, image and video analysis and machine learning algorithms.
  • Intelligent automation for business processes using AI and machine learning technologies.
  • Predictive analytics for predictive modelling and data analysis, helping companies make data-driven decisions.
  • AI-powered chatbots that use natural language processing and machine learning to interact with customers and provide support.
  • AI-powered cybersecurity that uses AI and machine learning to detect and prevent cyber-attacks.

The company is an established authority in this space and is well-poised to benefit from the explosive growth in the AI market over the next decade.

Happiest Minds Financial Snapshot (2018-2022)

  2018-2019 2019-2020 2020-2021 2021-2022
Revenue Growth (%) 23.84% 19.08% 11.68% 41.76%
Operating Profit Margin (%) 8.14% 16.20% 27.83% 26.95%
Net Profit Margin (%) 3.07% 10.27% 21.01% 16.57%
Return on Equity(%) 11.82% 36.81% 42.37% 30.09%
Data Source: Ace Equity

The business has an excellent track record. While revenues have more than doubled, the net losses have turned into profits and have multiplied 10 times in the past five years.

The business is a cash cow that has boosted returns. What the company has not been dishing out to its shareholders in form of buybacks or dividends, has been piling up on its balance sheet.

To know more, check out its financial factsheet and latest financial results.

#3 Persistent Systems

Third on our list is Persistent Systems.

Persistent is a Tier-1 and mid-sized Indian IT firm. It is among the few successful mid-tier tech companies in India, highly active in the upcoming digital technologies pace.

The company derives its revenues by offering services in software and product development. In software services, the company competes with more established names like TCS, Infosys, and the mid-techs.

However, it competes with smaller niche providers in India and internationally in the digital and products platform space.

The company has an edge in cloud-native application development, analytics and AI, cloud engineering, migrations and managed services. It has been awarded and highly recognised for its analysis and AI capabilities.

The business has been growing well, primarily driven by the US market, which accounts for more than 80% of the revenues.

Persistent Systems Financial Snapshot (2018-2022)

  2017-2018 2018-2019 2019-2020 2020-2021 2021-2022
Revenue Growth (%) 6.60% 9.20% 6.90% 16.20% 36.50%
Operating Profit Margin (%) 19.40% 19.10% 17.50% 18.90% 19.30%
Net Profit Margin (%) 10.60% 10.40% 9.50% 10.80% 12.10%
Return on Equity(%) 16.20% 15.80% 14.50% 17.70% 23.00%
Data Source: Ace Equity

The revenue and profit of the company has nearly doubled, growing at a healthy 5-year CAGR of 14.5% and 18.2%, respectively.

Return on equity (RoE) also mirrors the same, averaging 17.4% in the past 5 years.

To know more, check out its financial factsheet and latest quarterly results.

#4 Saksoft

Fourth on our list is Saksoft.

Saksoft is an IT consulting company that offers a range of services in the areas of digital transformation, data management, cloud services, and software engineering. The company has recently expanded its services to include AI and machine learning (ML) solutions.

Saksoft's AI services include developing and implementing AI solutions for businesses to automate processes, improve customer experience, and gain insights from data. Some of the specific AI services offered by Saksoft include natural language processing (NLP), computer vision, predictive analytics, and chatbot development.

The company is confident in the growth in the AI segment, driven by the services offered to the fintech sector.

Saksoft Financial Snapshot (2018-2022)

  2017-2018 2018-2019 2019-2020 2020-2021 2021-2022
Revenue Growth (%) 6.57% 9.18% 6.85% 16.16% 36.54%
Operating Profit Margin (%) 19.38% 19.13% 17.52% 18.88% 19.30%
Net Profit Margin (%) 10.65% 10.45% 9.54% 10.76% 12.09%
Return on Equity(%) 16.16% 15.79% 14.50% 17.66% 23.00%
Data Source: Ace Equity

The business has performed exceedingly well. While the revenues have doubled, net profit is up 3 times in the last 5 years. The company has registered RoE of 20% in the financial year 2022.

To know more, check out its financial factsheet and latest quarterly results.

#5 Affle (India)

Last on our list is Affle India.

Affle is a leading mobile marketing and advertising technology company that offers a range of digital solutions to businesses. The company has recently expanded its services to include AI and machine learning solutions.

Their AI services include developing and implementing AI solutions for businesses to enhance customer engagement, improve advertising effectiveness, and gain insights from data.

In the digital advertising segment, the company competes with InMobi, a global mobile advertising and discovery platform and other giants in this field such as Google Ads and Facebook Ads.

Some of the specific AI services offered by Affle India include natural language processing (NLP), computer vision, predictive analytics, and chatbot development. Going forward, the company is confident of the increased adoption of artificial intelligence in the digital advertising space.

The business has been growing well on the back of several acquisitions and increased mobile penetration in the country.

Moreover, the company's customer base has also expanded to include some of the big names in India and the world over, such as McDonald's, Apollo, Byjus, Swiggy, Zee5, etc.

Affle India Financial Snapshot (2018-2022)

  2019-2020 2020-2021 2021-2022
Revenue Growth (%) 36.57% 63.69% 106.81%
Operating Profit Margin (%) 28.16% 33.13% 26.33%
Net Profit Margin (%) 19.63% 26.13% 19.85%
Return on Equity(%) 43.45% 45.94% 28.00%
Data Source: Ace Equity

While revenue and profits have multiplied significantly in the past 5 years, RoE reported in financial year 2022 stands at 18%.

The company has not been paying dividends to its shareholders. The cash generated has been used for acquisitions of various tech companies and their own subsidiaries.

Moreover, the company has patented a lot of its technology and built a patent portfolio with 20 patents across India, the US and Singapore.

To know more, check out its financial factsheet and latest quarterly results.

Snapshot of Artificial Intelligence Stocks on Equitymaster's Indian Stock Screener

Here's a quick view of the above companies based on their financials.

chart

Please note that these parameters can be changed according to your selection criteria.

This will help you identify and eliminate stocks not meeting your requirements and emphasise those stocks well inside the metrics.

In conclusion

According to a report published by the Niti Aayog, India's think tank, AI has the potential to add approximately US$ 957 billion or 15% of the current gross value to the Indian economy in 2035.

The AI sector in India is rapidly growing and has significant potential for development and innovation. India is home to a large number of technology companies that are investing in AI research and development.

The government has also launched various initiatives and policies to support the growth of the AI sector in the country.

It remains to be seen how and when the sector presents a breakthrough. Until then, you can track these stocks and keep track of their acquisitions.

For more on AI stocks, check out the below video where Richa Agarwal talks about 3 unconventional AI stocks.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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