Investing in artificial intelligence (AI) seems to have become more challenging in recent months. More than a year after generative AI sparked excitement among tech investors, specific stocks such as Nvidia, Super microAnd CrowdStrike seem to have attracted the most interest and risen to nose-bleed valuations.
Fortunately for investors who feel like they missed out on these stocks, AI is likely to be more than a flash in the pan. So, one can buy and hold specific AI stocks over the next decade with a reasonable expectation of significant returns. These three stocks should deliver returns for investors.
1. Palantir Technologies
At first glance, investors might assume they’ve missed something Palantir Technologies (NYSE: PLTR). The stock has quadrupled since bottoming in late 2022. Moreover, the recent revenue growth is unlikely to impress growth investors.
Still, investors may yet to fully appreciate the game-changing potential of its generative AI product, the Artificial Intelligence Platform (AIP). AIP builds on the analytics capabilities of its legacy Gotham and Foundry platforms. While those platforms also relied on AI, the productivity gains reported by AIP users have been eye-popping.
After attending AIP bootcamps, companies seem to find multiple use cases. One potential customer achieved more in a day via AIP than a hyperscaler (such as Amazon Web Services) could achieve it in four months, while another claimed to build 10 times faster with three times less resources. Such results seem likely to quickly lead to new seven-figure deals for Palantir.
As mentioned, results may take a while. In the first quarter of 2024, revenue of $634 million rose 21%, which seems modest compared to the price-to-sales (P/S) ratio of 24.
Still, net income of $106 million is more than six times higher than a year ago. If revenue growth begins to reflect the productivity gains and increased deal volumes driven by AIP, share price growth should accelerate significantly in the coming years.
2. Alphabet
In addition to emerging AI companies, investors may also want to look at one of the pioneers in this field: Google’s parent company Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). Alphabet began using the technology in 2001 and became an AI-first company in 2016, using the technology in all subsequent product releases.
However, the rise of ChatGPT gave investors the impression that Alphabet had fallen behind its competitors. For the first time in decades, Google’s dominant search engine faced a credible competitive threat.
Still, before writing off Alphabet, investors should remember that it has released its own generative AI tool in the form of Google Gemini. What’s more, Google Cloud, the third-largest cloud company, ensures that it will play a critical role in deploying this technology to customers.
Moreover, in April 2023, Alphabet combined its research teams to form Google DeepMind. With $108 billion in liquidity to support its efforts, Alphabet is unlikely to lag behind in this area.
Finally, with a price-to-earnings ratio of 28, it is cheaper than its megatech competitors. Given its breadth of experience in AI and vast resource base, Google parent company is likely to remain a force in the AI ​​industry for a long time.
3. VanEck Semiconductor ETF
Investors who prefer not to risk precious capital on the fortunes of a particular company may simply want to invest in most of the best chip stocks through the VanEck Semiconductor ETF (NASDAQ: SMH). Most of the companies within the exchange-traded fund (ETF) are designing or manufacturing AI-ready chips. Without this technology, AI would not have been possible.
This ETF invests about 20% of its assets in Nvidia, with another 13% in the leading chipmaker Taiwanese semiconductor manufacturing. However, the rest of the investments each represent less than 10% of the fund Broadcom, Advanced micro devicesAnd Micron are among the 26 shares held.
Moreover, it reported returns of 28% per year over the last 10 years. For comparison: the benchmark SPDR S&P500 reported an average annual return of 13% over the same period, less than half the return of the VanEck ETF.
Additionally, VanEck’s ETF expense ratio is 0.35%, slightly lower than the average expense ratio of 0.37%, according to Morning star. So the fund has achieved these outsized returns at an affordable price.
The fund certainly doesn’t guarantee it will match the 28% annual average return over the past 10 years. But if you want outsized returns with lower risk and without the work it takes to find such stocks, you’ll likely find both in the VanEck Semiconductor ETF.
Should you invest €1,000 in Alphabet now?
Before you buy Alphabet stock, here are some things to consider:
The Motley Fool stock advisor The team of analysts has just identified what they think is the 10 best stocks for investors to buy now… and Alphabet wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $759,759!*
Stock Advisor offers investors an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns as of June 24, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Will Healy has positions in Advanced Micro Devices, CrowdStrike and Palantir Technologies. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, CrowdStrike, Microsoft, Nvidia, Oracle, Palantir Technologies, Salesforce, Taiwan Semiconductor Manufacturing and Tencent. The Motley Fool recommends Alibaba Group, Broadcom and International Business Machines and recommends the following options: long January 2026 $395 call Microsoft and short January 2026 $405 call Microsoft. The Motley Fool has a disclosure policy.
3 Artificial Intelligence Stocks to Buy and Hold for the Next Decade was originally published by The Motley Fool
