Artificial intelligence (AI) is a transformative technology, and many businesses are rushing to capture a piece of this rapidly expanding market. Research outfit Statista forecasts that the AI industry will grow from $136 billion in 2023 to $827 billion by 2030.
At this early stage of the AI revolution, it can be challenging to identify which companies will be able to successfully capitalize on the opportunities in it over the long run. But among the plethora of businesses battling for dominance in the space, three stand out as compelling AI stocks to buy and hold for years as that market grows: Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), and Palantir Technologies (NYSE: PLTR).
1. Amazon
Amazon may be best known for its e-commerce business, but its use of AI is key to its ongoing success. For instance, the e-commerce giant created an AI tool to make it easy for third-party sellers to list their products on Amazon. They simply enter the URL of the appropriate page on their website into the tool, and AI automatically extracts the products to repost on Amazon’s site.
Helping third-party sellers is important since Amazon generates a substantial portion of its revenue from them. In Q1, the various fees Amazon collected from these sellers amounted to $34.6 billion of its $143.3 billion in revenue.
The firm is also leaning on AI as it develops new technologies. For example, Amazon used AI to develop a system that can accurately identify people based on the vein structures of their palms, so customers can now get their hands scanned and then use their palms to pay when shopping at its Amazon Fresh and Whole Foods stores. Another example is its Alexa virtual assistant, which relies on AI to understand human speech and execute tasks.
The company’s cloud computing division, Amazon Web Services (AWS), provides other businesses with the technology to build and run AI models. Customers are increasingly making use of these AI capabilities, which helped AWS achieve 17% year-over-year sales growth to $25 billion in the first quarter.
Amazon’s successes in harnessing AI have already allowed it to achieve a multibillion-dollar revenue run rate from AI, which suggests that these technologies could propel its business forward for years to come.
2. Alphabet
Alphabet has aggressively pursued AI for years. Indeed, as CEO Sundar Pichai has said, “We reoriented the company around AI.”
Artificial intelligence is part of the company’s strategy to fend off competition and maintain its dominance in areas such as digital advertising, where it holds about 40% of the market compared to Amazon’s 7%.
Like Amazon, Alphabet is using AI to improve its products and assist other businesses with creating AI models. For instance, AI has been injected into Google Search, Google Docs, and Google Cloud to improve these products and provide new capabilities, such as helping people to write emails.
But what truly makes Alphabet an attractive AI investment are the company’s efforts to create amazing new technologies to solve society’s greatest challenges. One example is its use of AI in its efforts to build the technology needed to harness nuclear fusion. Solving this problem would provide humanity with a nearly limitless clean energy source.
Alphabet is capable of funding this type of research because it generates tremendous amounts of revenue and free cash flow. In Q1, its sales rose 15% year over year to $80.5 billion, and it produced $16.8 billion in free cash flow.
Thanks to its massive free cash flow, Alphabet can easily afford a dividend, and it finally rewarded investors with its first one ever in Q1 — a $0.20 per share distribution. Dividends add to the return on your investments, and can provide passive income sources as well.
3. Palantir Technologies
As a company focused on data analytics, Palantir is in a strong position to make the most of AI. That’s because AI requires lots of data to successfully make decisions.
But harnessing AI isn’t just about having a massive trove of data. AI requires that data to be organized and accurate. How can an organization do that?
Palantir’s solution is its Foundry Ontology system, which organizes and structures a customer’s data by mapping properties and relationships across the data.
As CEO Alex Karp explained Palantir’s approach and competitive advantage: “We are differentiated because in order to actually make AI work, you need an ontology.”
Palantir’s early efforts were focused on helping the U.S. government in its counterterrorism investigations. From that foundation, it has expanded into commercial markets, and last year, it launched the Palantir Artificial Intelligence Platform (AIP).
AIP has been a success, as illustrated by the U.S. Army choosing Palantir to assist in building its first AI-powered military vehicle.
AIP helped drive the company’s revenue up by 17% in 2023 to $2.2 billion. And in Q1 2024, sales rose 21% year over year to $634.3 million.
Palantir’s Q1 performance suggests its revenue growth rate is accelerating. As a result, management raised its full-year guidance and forecast that Q2 revenue would reach at least $649 million, up from the prior year’s $533 million.
With cutting-edge tech in their possession and track records of success, Palantir, Amazon, and Alphabet look like good stocks to buy and hold for investors who want to benefit from the AI industry’s coming years of growth.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Robert Izquierdo has positions in Alphabet, Amazon, and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, and Palantir Technologies. The Motley Fool has a disclosure policy.
3 Artificial Intelligence (AI) Stocks to Buy Now and Hold for Decades was originally published by The Motley Fool
