Artificial intelligence (AI) is a transformative technology, and many companies are rushing to capture a piece of this rapidly growing market. Research firm Statista predicts that the AI industry will grow from $136 billion in 2023 to $827 billion in 2030.
At this early stage of the AI revolution, it can be challenging to identify which companies will successfully capitalize on the opportunities this revolution presents in 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 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 the 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 extracts the products to relist on Amazon’s site.
Helping third-party sellers is important since Amazon generates a substantial portion of its revenue through them. In Q1, the various fees Amazon received from these sellers amounted to $34.6 billion of its $143.3 billion in revenue.
The company also leans on AI to develop new technologies. For example, Amazon used AI to develop a system that can accurately identify people based on the vein structures in their palms, so customers can now have their hands scanned and then use their palms to pay while shopping at Amazon Fresh and Whole Foods stores. Another example is the virtual assistant Alexa, which relies on AI to understand human speech and perform tasks.
The company’s cloud computing division, Amazon Web Services (AWS), provides other companies with the technology to build and run AI models. Customers are increasingly leveraging 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 multi-billion dollar sales with AI, suggesting that these technologies could propel its business forward in the coming years.
2. Alphabet
Alphabet has been aggressively pursuing AI for years. 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 provide new capabilities, such as helping people write emails.
But what really makes Alphabet an attractive AI investment 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 virtually unlimited clean energy source.
Alphabet is able to fund this type of research because it generates enormous amounts of revenue and free cash flow. In the first quarter, revenue rose 15% year over year to $80.5 billion and generated $16.8 billion in free cash flow.
Thanks to its massive free cash flow, Alphabet can easily afford a dividend, and it ultimately rewarded investors with its first-ever dividend in Q1 — a distribution of $0.20 per share. Dividends contribute to the return on your investments and can also provide passive income sources.
3. Palantir Technologies
As a data analytics company, Palantir is in a strong position to get the most out of AI. That’s because AI requires a lot of data to make successful decisions.
But harnessing AI isn’t just about having a huge amount of data. AI requires data to be organized and accurate. How can an organization do that?
Palantir’s solution is the Foundry Ontology system, which organizes and structures a customer’s data by mapping properties and relationships to the data.
CEO Alex Karp explained Palantir’s approach and competitive advantage this way: “We differentiate because you need an ontology to actually make AI work.”
Palantir’s early efforts focused on helping the U.S. government with its counterterrorism investigations. From that base, the company expanded into commercial markets, and last year launched the Palantir Artificial Intelligence Platform (AIP).
AIP has been a success, as evidenced by the US Army selecting Palantir to help build its first AI-powered military vehicle.
AIP helped the company’s revenue grow 17% in 2023 to $2.2 billion. And in Q1 2024, revenue rose 21% year-over-year to $634.3 million.
Palantir’s Q1 performance suggests that revenue growth is accelerating. As a result, management raised its full-year forecast, predicting that revenue would reach at least $649 million in Q2, up from $533 million the prior year.
With cutting-edge technology under their belts and track records of success, Palantir, Amazon and Alphabet appear to be good stocks to buy and hold for investors looking to benefit from the AI industry’s coming years of growth.
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Suzanne Frey, an executive at Alphabet, serves on the board of directors of The Motley Fool. 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 held positions at Alphabet, Amazon and Palantir Technologies. The Motley Fool has features at 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
