Long-term investors need to think differently when evaluating stocks. Looking decades ahead, it is as much about avoiding unnecessary risks and losses as it is about maximizing profits. Ideally, these investors will compromise somewhere in the middle.
Finding a middle ground is the way to go when it comes to artificial intelligence (AI) stocks. Do you want to drive AI to big portfolio gains in the coming decades? Your search should focus on the best long-term AI stocks. The best choices in this sector could be a few obscure companies that no one is talking about… or they could be a few obvious AI champions that have proven they can be winners. It’s all a matter of what went into creating your investment thesis.
Here are three reasons why Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN)And Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) could be the best long-term AI stocks money can buy.
1. They own the cloud layer of the economy
There are enormous technological challenges associated with developing and exploiting AI models. It takes a lot of thousands of AI chips and it involves enormous energy consumption. A single search on ChatGPT is estimated to use 15 times more energy than a Google search.
Those costs partly explain why ChatGPT developer OpenAI has partnered with Microsoft. While many companies can benefit from AI technology, only a few can afford to own and operate it. Most companies entering this sector will end up paying to access AI technology rather than building it for themselves.
AI overlaps perfectly with cloud computing, with a few companies owning and operating most of the world’s cloud resources. Microsoft, Amazon and Alphabet own approximately 67% of the global cloud market. Today, most of the connected world runs on this infrastructure, making it perfect for distributing AI technology to the masses.
You can already see these giant cloud companies weaving AI products and services into the cloud. It just makes too much sense. Cloud dominance is a huge hurdle for other companies to overcome, and these three companies can continue to dominate the cloud and AI therefore in the coming years.
2. Deep pockets gave them a huge advantage in AI
It’s almost as if these companies won the metaphorical lottery to become these huge and powerful companies, and then won again when AI emerged as a perfect fit in their existing business models. Again, the vast majority of companies cannot compete with the deep pockets that Microsoft, Amazon and Alphabet possess.
How much money are these companies creating? As things stand, these three combined to generate more than $184 billion in free cash flow last year alone. That’s the discretionary cash profits that these companies have to spend as they please. note that this includes capital expenditures and business investments such as purchasing AI chips and expanding data centers.
Recoup those investments by looking at operating cash flow. These companies collectively raised over $300 billion in just one year!
These companies operate hundreds of data centers around the world and can afford to build many more to support the demand for AI. It’s an arms race where virtually no one has a chance to come in and win from the outside. These companies realistically only compete with each other.
3. Nvidia is only part of the AI equation and may eventually be replaced
Investors should not forget this Nvidia (NASDAQ: NVDA), which has quickly become a potential AI rival to these companies in terms of size and scale. I’m not saying that Nvidia won’t be a fantastic investment and a major player in AI for decades to come.
But consider this food for thought: Chips are the building blocks of AI, but not AI itself. The chips are only part of the equation. So far, Nvidia has done a fantastic job of establishing itself as the de facto supplier of AI chips.
Still, Nvidia is dependent on Microsoft, Amazon and Alphabet to continue building their AI infrastructure using their chips. It’s unclear if that will continue forever. Again, it’s easily possible that Nvidia will remain the leading player in AI chips for the foreseeable future. But it’s at least worth wondering whether these cash-flush tech giants will continue to pay billions of dollars to Nvidia forever.
They don’t have to switch to a competitor’s AI chip Advanced micro devices. Instead, Microsoft, Amazon and Alphabet could design custom chips for internal use, allowing them to diversify their chip offerings away from Nvidia as the main source. Custom chips wouldn’t be easy, but if any company can do it, it’s probably these three.
So, do these three big cloud companies need Nvidia, or does Nvidia need them? This question has no clear answer today. However, the possibility of in-house chip designs is enough to give Microsoft, Amazon and Alphabet the nod, as the best AI stock investors could stay decades into the future.
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Suzanne Frey, a director 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. Justin Pope has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
3 Unstoppable Artificial Intelligence (AI) Stocks to Buy and Hold for Decades was originally published by The Motley Fool
