Three Australian AI companies to watch


Whether you do or don't like or use artificial intelligence (AI) technology, we can all agree that it's here to stay.

From an investment viewpoint, if this sector can perform in Australia even remotely close to its American neighbour, then we might well be staring at a future goldmine for early investors.

As such, let's take a look at Australia's AI industry to uncover those companies at the forefront of the AI revolution. Before we do, let's take a brief look at the US market.

investing in artificial intelligence stocks

The Nasdaq Composite has recovered rapidly since the COVID-19 pandemic, rising more than 55% from the 2022 low. This is largely due to investment in AI-related companies such as AWS, Google, Microsoft, Meta and NVIDIA, with NVIDIA's share price up more than 60% this year alone!

Despite the Australian market being heavily weighted towards the financials and materials sectors, I believe the artificial intelligence industry is on the cusp of remarkable growth.

This is being driven by the recent improvements in generative AI and a greater willingness to use AI in different industries.

According to projections, AI spending in Australia is expected to reach US$6.4 billion by 2026, contributing to an estimated AU$22.7 trillion boost to the global economy by 2030. If that's not exciting enough, February saw the tech sector just have its strongest gains in one month!

So, with this increased interest in the sector, let's take a look at three companies that have caught my attention.

Appen Ltd (ASX: APX)

Despite recent challenges, Appen remains a key player, providing data tools and services to global market players.

The company's new products are focused on generative AI applications, and with the share price trading at an all-time low, I believe the potential upside for investors in this stock is astronomical if Appen can get things right. It's just too early right now to invest.

Next DC (ASX: NXT)

NXT is Australia's leading data centre company. It operates 13 centres across multiple countries and is in partnership with Microsoft. The share price is currently trading at an all-time high, and rightfully so.

Therefore, while I believe now is not the ideal time to buy this stock as I believe it has run a little too hard in the short term, I will be watching it like a hawk, waiting for the next opportunity.

Brainchip Holdings Ltd (ASX: BRN)

Brainchip is at the forefront of AI reasoning and analysis. Most notably, it is known for its Akida Neuromorphic Processor, and the company is forecasting it will be operating in a market worth more than US$1 trillion by 2030.

To add further good news, it has posted one of its best months in recent history, up more than 150% for the month of February.

Unlike NXT, however, which is trading at its all-time high, I believe BRN has plenty more upside potential in the short to medium term; therefore, this is one to watch very closely.

What are the best and worst-performing sectors this week?

The best-performing sectors include Information Technology, up more than 5%, while Consumer Discretionary and Consumer Staples are both up more than 2%.  The worst-performing sectors include Utilities, down more than 1%, followed by Energy and Real Estate, down around 0.5%.

The best-performing stocks in the ASX top 100 include Next DC, up more than 16%, followed by Pilbara Minerals, up more than 14% and Reece, up more than 11%.

The worst-performing stocks include NIB Holdings, down more than 10%, followed by Fortescue Metals, down more than 8% and Iluka Resources, down more than 4%.

What's next for the Australian stock market?

If you had read my report at the start of February, you would have seen that I performed some seasonality analysis for the month, which resulted in statistics showing it was going to be a flat month.

As we close out February, this is pretty much what happened.

This week also closed out the first round of reporting for 2024, which has produced an overall upbeat result, with more than 65% of companies either beating or meeting expectations. Considering all the talk of recession and inflationary concerns, that's not bad.

Now, if you've been keeping up with my reports over the last couple of weeks, you would know that I've been waiting for the All Ordinaries index to break its all-time high.

Well, I can now finally post that it took until the last day of February for this to occur.

This is exciting news for our stock market, and I anticipate the first week of March pushing our index even higher, providing us with upward momentum for at least the next two to three weeks.

In last week's report, I provided possible levels of future resistance being 8150 and 8750 points, so keep a close eye on these levels.

What's also interesting to note in terms of trading volume this month is that the Materials sector was the most active. Materials turned over more than four times the volume of the next best sector, which was Energy.

This indicates that the materials sector was where most of the action was for traders and investors during the reporting period, so I'd encourage you to take a deeper look in this sector as you might find some hidden gems with the potential for fantastic returns.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.