Artificial intelligence is one of those catchy phrases that continues to grab investors attention. Like 5G, it tugs on the sleeves of those looking to get in on cutting-edge technology. While it is a very important sector of technology, investors need to be wary of hype and focus on reality before buying AI stocks.

Take, for example, International Business Machines (NYSE:IBM). IBM has been on the front line of AI with its Watson-branded products and services. Sure, it did a bang up job on Jeopardy and it partners with dozens of companies. But for IBM shareholders, Watson is not a portfolio favorite.

Over the past five years, IBM has lost 28.7% in price compared to the S&P 500s gain of 37.5% and the S&P Information Technology Indexs gain of 130%. And over the past 10 years, IBMs AI leadership has generated a shareholder loss of 3.4%.

Source: Chart by Bloomberg

IBM (White), S&P 500 (Red) & S&P 500 Information Technology (Gold) Indexes Total Return

But AI is more than just a party trick like Watson. AI brings algorithms into computers. These algorithms then take internal and external data, and in turn process decisions behind all sorts of products and services. Think for example something as simple as targeted ads. Data is gathered and processed while you simply shop online.

But AI can go much further. Think, of course, of autonomous vehicles. AI takes all sorts of input data and the central processor makes calls to how the vehicle moves and at what speed and direction.

Or in medicine, AI brings quicker analysis of symptoms, diagnostic data and tests.

And the list goes on.

So then what do I bring to the table as a human? I have found ten AI stocks that arent just companies using AI. These are companies to own and follow for years complete with dividends along the way.

Lets start with the index of the best technology companies found inside that S&P Information Technology index cited earlier. The Vanguard Information Technology ETF (NYSEARCA:VGT) synthetically invests in the leaders of that index. It should be the starting point for all technology investing it offers a solid foundation for portfolios.

Source: Chart by Bloomberg

Vanguard Information Technology ETF (VGT) Total Return

The exchange-traded fund continues to perform well. Its return for just the past five years runs at 141.1% for an average annual equivalent return of 19.2%. This includes the major fall in March 2020.

Before I move to the next of my AI stocks, its important to note that data doesnt just get collected. It also has to be communicated quickly and efficiently to make processes work.

Take the AI example mentioned earlier for autonomous vehicles. AI driving needs to know not just what is in front of the vehicle, but what is coming around the next corner. This means having dependable data transmission. And the two leaders that make this happen now and will continue to do so with 5G are AT&T (NYSE:T) and Verizon (NYSE:VZ).

Source: Chart by Bloomberg

AT&T (White) & Verizon (VZ) Total Return

Much like other successful AI stocks, AT&T and Verizon have lots of communications services and content. This provides some additional opportunities and diversification but can limit investor interest in the near term. This is the case with AT&T and its Time Warner content businesses. But this also means that right now, both of these stocks are good bargains.

And they have a history of delivering to shareholders. AT&T has returned 100% over the past 10 years, while Verizon has returned 242%.

AI takes lots of equipment. Chips, processors and communications gear all go into making AI computers and devices. And you should buy these two companies for their role in equipment: Samsung Electronics (OTCMKTS:SSNLF) and Ericsson (NASDAQ:ERIC).

Samsung is one of the global companies that is essential for nearly anything that involves technology and hardware.Hardly any device out there isnt a either a Samsung product or has components invented and produced by Samsung.

And Ericsson is one of the leaders in communications gear and systems. Its products makes AI communications and data transmission work, including on current 4G and 5G.

Source: Chart by Bloomberg

Samsung Electronics (White) & Ericsson (Red) Total Return

Over the past 10 years Samsung has delivered a return of 235.4% in U.S. dollars while Ericsson has lagged, returning a less-than-stellar 6.5%.

Both have some challenges in their stock prices. Samsungs shares are more challenging to buy in the U.S. And Ericsson faces economic challenges as its deep in the European market. But in both cases, you get great products from companies that are still value buys.

Samsung is valued at a mere 1.2 times book and 1.3 times trailing sales, which is significantly cheaper than its global peers. And Ericsson is also a bargain, trading at a mere 1.3 times trailing sales.

To make AI work you need lots of software. This brings in Microsoft (NASDAQ:MSFT). The company is one of the cornerstones of software its products have all sorts of tech uses.

And AI especially on the move needs quick access to huge amounts of data in the cloud. Microsoft and its Azure-branded cloud fits the bill.

Source: Chart by Bloomberg

Microsoft (MSFT) Total Return

Microsoft, to me, is the poster child of successful technology companies. It went from one-off unit sales of packaged products to recurring income streams from software subscriptions. Now its pivoting to cloud services. And shareholders continue to see rewards. The companys stock has returned 702.7% over the past 10 years alone.

AI and the cloud are integral in their processing and storage of data. But beyond software and hardware, you need to stack off the hardware, complete with power and climate controls, transmission lines and wireless capabilities.

This means data centers. And there are two companies set up as real estate investment trusts (REITs) that lead the way with their real estate and data centers. These are Digital Realty Trust (NYSE:DLR) and Corporate Office Properties (NYSE:OFC).

Digital Realty has the right name, as Corporate Office Properties doesnt tell the full story. The latter company has Amazon (NASDAQ:AMZN) and its Amazon Web Services (AWS) as exclusive clients in core centers, including the vital hub in Northern Virginia.

And the stock-price returns show the power of the name. Digital Realty has returned 310.9% against a loss of 0.9% for Corporate Office Properties.

Source: Chart by Bloomberg

Corporate Office Properties (White) & Digital Realty (Red) Total Return

But this means that while both are good buys right now, Corporate Office Properties is a particular bargain. The stock price is at a mere 1.7 times the companys book value.

Now Ill get to the newer companies in the AI space. These are the companies that are in various stages of development. Some are private now, or are pending public listings. Others are waiting for larger companies to snap them up.

Most individual investors unless they have a net worth nearing $1 billion dont get access. But I have a company that brings this access, and its my stock for theInvestorPlaceBest Stocks for 2020 contest.

Hercules Capital (NYSE:HTGC) is set up as business development company (BDC) that provides financing to all levels of technology companies. Along the way, it takes equity participation in these companies.

It supports hundreds of current technology companies using or developing AI for products and services along with a grand list of past accomplishments. The current portfolio can be found here.

I have followed this company since its early days. I like that it is very investor focused, complete with big dividend payments throughout the many years. And it has returned 184.3% over just the past 10 years alone.

Source: Chart by Bloomberg

Hercules Capital (HTGC) Total Return

Who doesnt buy goods and services from Amazon? I am a prime member with video, audio and book services. And I also have many Alexa devices that I use throughout the day. While I dont contract directly with its AWS, I use its cloud storage as part of other services. Few major companies that are part daily life make use of AI more than Amazon.

The current lockdown mess has made Amazon a further necessity. Toilet paper, paper towels, cleaning supplies, toothpaste, soap and so many other items are sold and delivered by Amazon.

And I also use the platform for additional digital information from the Washington Post. Plus, I get food and other household goods from Whole Foods, and products for my miniature dachshund, Blue, come from Amazon.

This is a company that I have always liked as a consumer, but didnt completely get as an investor. Growth for growths sake was what it appeared to be from my perspective. But I have been coming to a different understanding of what Amazon means as an investment.

It really is more of an index of what has been working in the U.S. for cloud computing and goods and services. And the current mess makes it not just more relevant but a necessity. Its proof comes from the sales that keep rolling up for the company on real GAAP terms.

Source: Chart by Bloomberg

Amazon Sales Revenue (GAAP)

I know that my subscribers to my Profitable Investing dont pay to have me tell them about Amazon. But I am recommending buying shares as the company is really a leading index of the evolving U.S. It is fully engaged in benefitting from AI, like my other AI stocks.

Neil George was once an all-star bond trader, but now he works morning and night to steer readers away from traps and into safe, top-performing income investments. Neils new income program is a cash-generating machine one that can help you collect $208 every day the markets open. Neil does not have any holdings in the securities mentioned above.

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Theres Nothing Fake About These 10 Artificial Intelligence Stocks to Buy - InvestorPlace