April 19, 2024
3 Artificial Intelligence (AI) Stocks to Buy for ,000 and Hold for Decades  The Motley Fool

It is becoming clear that artificial intelligence (AI) is not just a stock market sensation, but a remarkable innovation that will impact the world in countless ways. According to a study by PricewaterhouseCoopers (PwC), AI could contribute more than $15 trillion to the global economy by 2030.

Identifying and holding companies that are driving the growth of AI could prove very attractive for long-term investors. So I set out to find them. While anything could happen in the future, this is what today’s elite look like NVIDIA (NVDA 4.92%), Alphabet (GOOGL 0.92%) (GOOGL 0.92%), and super micro computer (SMCI -0.73% ) as the top three companies making bets.

Even better, if you have some extra cash that you don’t need for near-term expenses, you can own any of the three stocks for less than $1,000, giving you access to solid long-term opportunities. Will be received.

I’ll explain the investment thesis for each stock below.

1. Major strength in AI chips

Nvidia was one of the best-performing stocks in 2023, but it deserves the praise it has received. The company’s AI chips have become the industry leader, achieving a dominant market share of up to 90%. According to Deloitte, the AI ​​chip market could grow between $110 billion to $400 billion by 2027. This marks tremendous growth for the major player, which did “just” $45 billion in companywide sales last year.

Even if competitors like amd chip away Barring an unexpected and epic collapse on Nvidia’s part, Nvidia’s top line is likely to grow for years. This growth scenario helps explain why the stock can continue to outperform despite rising 350% over the past three years.

Analysts estimate long-term earnings will grow 42% annually due to the growth of artificial intelligence, making Nvidia’s current Forward P/E of 51 arguably a fair value, especially for investors looking to realize the potential of AI. Intend to buy and hold the stock for.

2. Alphabet sits on a data goldmine

If computing is half of the AI ​​coin, then data, on which AI models are trained, will be the other half. Arguably, no company is better at capturing data than Alphabet, which owns and operates two of the world’s most visited websites, Google Search and YouTube. They generated a total of 280 billion visits in November alone, compared to 18 billion for third place.

Alphabet is capturing every visit to its websites. Every search, click and video view. It uses its data to sell advertising, from which Alphabet earns most of its revenue and profits. This puts Alphabet in the driver’s seat to use its data with AI to deliver better ads or to develop and sell its own AI products, including ChatGate competitor Bard.

Investors can rely on Alphabet for its advertising business alone, which continues to post impressive growth despite its size. Advertising revenue in Q4 increased 11% year-over-year, reaching a surprise $65.5 billion. This is the golden goose for Alphabet, generating tens of billions of dollars of free cash flow annually. Using that cash by management to repurchase shares and increase earnings per share gives the stock a higher long-term floor. Additionally, the potential for AI innovation from within Alphabet also gives investors the potential to move forward.

3. A key partner for businesses investing in AI

Perhaps not as well known as the companies above, don’t underestimate super microcomputers. The company builds modular server systems for corporations. Building a computer system for AI or other high-tech applications is not like buying it from the store and following instructions. Most companies don’t want to build their own systems (or don’t know how to). Super Micro Computer’s proprietary hardware and know-how provides solutions to its customers.

Super microcomputers enjoy a good reputation in the technical industry; It has been in business since the early 1990s when corporate computing began to build rapidly. Additionally, AI has recently taken the development of super microcomputers to new heights. Its second-quarter revenue for fiscal 2024 increased 103% year-over-year to $3.66 billion. Its 73% increase compared to Q1 revenue indicates that the impact of AI on its business may still be in its early stages. Companies are turning to super microcomputers to power AI systems quickly and efficiently.

The company’s apparent AI momentum drove the stock higher after second-quarter earnings, but the stock may still have room for long-term upside. The market is valuing the stock at 27x forward earnings, and analysts are estimating 25% long-term earnings growth (estimates may be revised upward after such a strong Q2). It’s only a PEG ratio of more than 1, which shows that the stock is cheap relative to its expected growth. Of course, nothing is guaranteed. Still, it seems like the reputation of super microcomputers is winning over AI-related business, which bodes well for future investment returns if AI continues to deliver on its potential.

Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Justin Pope has no positions in any stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, and Nvidia. The Motley Fool recommends the Super Microcomputer. The Motley Fool has a disclosure policy.

Source: www.fool.com

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