The best way to profit from a brand-new and volatile industry like AI is to stick to the clear winners.
The hype around artificial intelligence (AI) is justified; researchers seem pretty sure that AI technology will add trillions of dollars in value to the global economy over the coming decade and beyond. That said, it’s unclear today which companies will be best at capturing this massive economic opportunity. That’s likely why AI hype has boosted so many technology stocks over the past 18 months.
Not every one of these AI stocks will succeed in the long run. The best money-making option for investors might be to swing to get on base rather than trying to hit home runs. One way to do that is to invest in obvious AI winners with less potential upside as well as less chance of striking out.
Three clear winners have emerged from the AI pack. With an investment of as little as $600, you could buy a full share of all three stocks and hold these winners indefinitely. These stocks have what it takes to establish quality AI exposure that could lift your portfolio over the coming years.
Software and specialty chip designer Nvidia (NVDA -0.77%) is the poster child of artificial intelligence today, placing it at the top of the list. Nvidia is the overwhelming choice for companies that need specialized AI chips for the data centers running powerful AI models. The company accounted for an astonishing 98% of data center graphics processing unit (GPU) sales last year. Revenue growth exploded, with companywide sales hitting nearly $80 billion over the past four quarters. Nvidia’s secret sauce is its proprietary CUDA software, which optimizes Nvidia’s GPU chips for AI applications. Long-term investors must ask: Can this level of growth continue?
Competition will undoubtedly come for Nvidia, and customers may not want to depend solely on one source for such a critical AI component. However, the AI chip market could grow to approximately $228 billion by 2030, several times its current size. It’s possible that a rapidly growing market offsets lost market share, and the fact that Nvidia dominated so much so quickly signals a powerful competitive moat that won’t likely fall apart easily. Continually advancing AI technology could demand frequent upgrades to better chips and hardware. There is much to like, even if Nvidia slowly cedes market share over the coming years. Long-term investors can confidently hold the stock until proven otherwise.
Veteran technology giant Microsoft (MSFT 0.43%) stands out for its diversification. The company dabbles in hardware and software across enterprise and consumer markets. From the cloud to gaming, Microsoft is everywhere. That includes plenty of AI exposure. Microsoft partnered with AI software developer OpenAI, establishing Microsoft’s Azure as its exclusive cloud platform. That means Microsoft benefits as AI-related computing needs trickle through its cloud business. Additionally, Microsoft is weaving AI features into software programs and launching AI-powered personal computers.
Financially, Microsoft is a juggernaut with a higher credit rating than the U.S. government. Management also treats shareholders well by returning profits via dividends and share repurchases. Microsoft has raised its dividend for 22 consecutive years and repurchased enough stock to lower its share count by almost 10% over the past decade. Microsoft’s best growth days are over; the company is already worth $3 trillion. However, there is still gas in the tank. Analysts expect double-digit earnings growth moving forward, which is plenty to make the stock a long-term winner.
AI tools are cutting-edge for most companies, but for Palantir Technologies (PLTR 1.23%), they’re an extension of what it’s known for years. Over a decade ago, the company started doing complex data analytics work for government agencies like the CIA, NSA, and FBI. Since then, it’s expanded to the corporate sector, where its custom software optimizes supply chains, detects financial fraud, and much more. Palantir launched its AIP platform last year to help customers develop and launch AI applications. Calling AIP a success would be an understatement. CEO Alex Karp has called customer demand for AIP unprecedented, and it’s showing up in the company’s results.
To date, Palantir still has just 262 commercial customers. There are over 20,000 large businesses in the United States alone. AI could become crucial to competing in the economy. The government’s close relationship with Palantir is arguably a vote of confidence in that idea. Investors are looking at potentially decades of growth as Palantir’s technology steadily expands to new industries and use cases. After all, there aren’t many (if any at all) software products as flexible as Palantir’s, which can aid military missions as easily as it can run a hospital. Investors can and should bet on Palantir’s diverse software creating ample growth and investment returns in the future.
