Artificial intelligence (AI) is a transformative technology, and many companies are racing to capture a share of this growing market. Research firm Statista predicts that the AI sector will grow from $136 billion in 2023 to $827 billion by 2030.
At this early stage of the AI revolution, it can be difficult to identify companies that will be able to successfully capitalize on the opportunities it presents over the long term. But among the plethora of companies vying for dominance in the sector, three stand out as compelling AI stocks to buy and hold for years to come as this market matures: 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 continued success. For example, 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 the AI automatically pulls products to republish on Amazon’s site.
It’s important to support third-party sellers because Amazon generates a substantial portion of its revenue from them. In the first quarter, the various fees collected by Amazon from these sellers represented $34.6 billion of Amazon’s $143.3 billion in revenue.
The company also relies on AI to develop new technologies. For example, Amazon used AI to develop a system that could accurately identify people based on the vein structure of their palms, so customers can now scan their hands and then use their palms to pay when they shop at its Amazon Fresh and Whole Foods stores. Another example is its virtual assistant Alexa, which relies on AI to understand human speech and perform tasks.
From the company cloud computing The Amazon Web Services (AWS) division provides other companies with the technology to build and run AI models. Customers are increasingly using these AI capabilities, helping AWS achieve 17% year-over-year revenue growth to $25 billion in the first quarter.
Amazon’s successes in leveraging AI have already enabled it to achieve a multibillion-dollar revenue run rate from AI, suggesting that these technologies could propel its business forward to coming years.
2. Alphabet
Alphabet has been aggressively pursuing AI for years. Indeed, as CEO Sundar Pichai said: “We have 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 has about 40% of the market, compared to Amazon’s 7%.
Like Amazon, Alphabet is using AI to improve its products and help other companies build AI models. For example, AI has been injected into Google Search, Google Docs, and Google Cloud to improve those products and deliver new features, such as helping people compose emails.
But what really makes Alphabet an attractive investment in AI is the company’s efforts to create amazing new technologies to solve society’s biggest challenges. One example is its use of AI in its efforts to develop the technology needed to harness nuclear fusion. Solving this problem would provide humanity with a nearly unlimited source of clean energy.
Alphabet is able to fund this type of research because it generates huge revenues and free movement of capitalIn the first quarter, its sales increased 15% year-over-year to $80.5 billion and generated $16.8 billion in free cash flow.
With its massive free cash flow, Alphabet can easily afford to pay a dividend and finally rewarded investors with its first-ever dividend in the first quarter: a payout of $0.20 per share. Dividends add to investment returns and can also be a source of passive income.
3. Palantir Technologies
As a data-driven company, Palantir is well positioned to leverage AI. That’s because AI requires a lot of data to make effective decisions.
But harnessing AI is not just about having a huge amount of data. AI requires data to be organized and accurate. How can an organization do this?
Palantir’s solution is its Foundry Ontology system, which organizes and structures a customer’s data by mapping properties and relationships between data.
As CEO Alex Karp explained of Palantir’s approach and competitive advantage: “We differentiate ourselves because for AI to actually work, you need an ontology. »
Palantir’s early efforts focused on assisting the U.S. government with its counterterrorism investigations. From there, the company expanded into commercial markets and launched the Palantir Artificial Intelligence Platform (AIP) last year.
The AIP has been a success, as illustrated by the US Army’s choice of Palantir to help build its first AI-powered military vehicle.
The AIP helped the company’s revenue grow 17% in 2023, to $2.2 billion. And in the first quarter of 2024, sales increased 21% year over year, to $634.3 million.
Palantir’s first-quarter performance suggests its revenue growth rate is accelerating. As a result, management raised its full-year guidance and expects second-quarter revenue to reach at least $649 million, up from $533 million a year earlier.
With cutting-edge technology in their possession and a track record of success, Palantir, Amazon, and Alphabet appear to be good buy-and-hold stocks for investors who want to benefit from the AI sector’s coming years of growth.
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Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Robert Izquierdo holds positions at Alphabet, Amazon and Palantir Technologies. The Motley Fool holds positions and recommends Alphabet, Amazon and Palantir Technologies. The Mad Motley has a disclosure policy.
3 Artificial Intelligence (AI) Stocks to Buy Now and Hold for Decades was originally published by The Motley Fool
