Artificial intelligence (AI) stocks have been gaining popularity in recent months. The rise of some AI stocks has been spectacular as investors and consumers increasingly recognize the productivity-boosting potential these stocks offer.
Despite this, long-term investors tend to look for stocks that don’t rise or fall as trends change. Instead, they likely want to focus on companies that run sustainable businesses that have the potential to deliver AI-driven benefits for decades. To this end, investors may want to consider the following positions in his AI stocks: alphabet (Google -0.99%) (GOOG -0.99%) and ASML (ASML -2.15%).
1. Alphabet
Google’s parent company Alphabet is an AI pioneer. The use of AI dates back to 2001, when machine learning (ML) technology was applied to correct the spelling of people using Google Search. From that point on, the use of AI steadily increased, and the company declared itself an “AI-first” company in 2016 and is committed to incorporating AI into its products and services. .
However, in 2023, when OpenAI released an upgraded version of ChatGPT, many observers began to question its AI capabilities. Considering the relationship with OpenAI, microsoftsome investors feared that Google Search would face serious competition for the first time in years.
Nevertheless, that fear appears to be exaggerated. Alphabet has released its own generative AI tool called Gemini. The company touts it as its most capable AI tool to date. Additionally, the company continues to stay ahead of the curve through its general purpose AI development company, Google DeepMind. Plus, with his $111 billion in liquidity, the company can afford to build or buy the technology it needs to stay competitive.
Additionally, Google Cloud’s growth is now outpacing Google Advertising, which still accounted for 76% of company revenue in the fourth quarter of 2023. This growth should accelerate AI development across the enterprise.
Whether the focus is advertising or other segments, Alphabet continues to grow at a considerable pace. Sales in 2023 amounted to $307 billion, an annual increase of 9%. Net income of $74 billion also rose 23% in the same period as the company controlled higher costs and expenses.
And despite all the talk about Alphabet’s laggards, its stock has risen more than 35% in the last year. And with the company’s P/E ratio of 25x, the lowest earnings multiple of the so-called “Magnificent Seven” stocks, now may be a good time to add to the search giant’s stock.
2.ASML
ASML calls itself “the most important technology company you’ve never heard of.” We are an equipment manufacturer that enables the world’s most advanced semiconductor manufacturing using extreme ultraviolet lithography (EUV) technology.
Its customers include chip industry heavyweights such as: samsung, taiwan semiconductorand intel, and the manufacturing capabilities of these companies would not be possible without the type of equipment that ASML provides. And thanks to ASML’s technical leadership, the following peers were born: ram research and applied materials Chip makers have fewer options.
Additionally, strong tailwinds are pushing stock prices higher. As the demand for AI chips increases, manufacturers need more ASML equipment. Companies are also scrambling to reduce production in Taiwan. Billions of dollars in government subsidies are available for adding production capacity in the United States, Europe and Japan, and ASML is one of the major beneficiaries.
Additionally, ASML’s machines cost up to $400 million each. Therefore, clients end up investing heavily in the maintenance of these machines. To this end, approximately 20% of our net sales in 2023 were from service and field options sales. These maintenance costs serve as a recurring revenue stream that can sustain ASML through periods of slow sales.
Overall, net sales in 2023 amounted to approximately 28 billion euros ($30 billion), an increase of 30% over 2022. Costs and expenses grew at about the same pace as revenue, but net profit rose 39% over the same period to €7.8 billion ($8.4 billion). a billion).
Nevertheless, it seems like more investors are finally hearing about ASML. Semiconductor stocks rose more than 35% in his 2024, with nearly all of that gain occurring in his 2024. Additionally, while a P/E ratio of 43x may seem high, it’s close to the historical average.
At the end of the day, this growth trend should bode well for ASML shareholders. As the need for chips increases, manufacturers are likely to continue turning to ASML to maintain their development pipelines.
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Will Healy has a position at Inter. The Motley Fool has positions in and recommends ASML, Alphabet, Applied Materials, Lam Research, Microsoft, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: Long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
