Artificial intelligence (AI) is proving to be more than just a stock market sensation, but a remarkable innovation that will impact the world in countless ways. According to a study by PricewaterhouseCoopers (PWC), AI could add more than $15 trillion in economic value to the global economy by 2030.
Identifying and owning companies that are driving AI growth can be very lucrative for long-term investors. That’s why I decided to look for them. Anything can happen in the future, but today’s Thoroughbreds are: Nvidia (NVDA 4.97%), alphabet (Google 0.86%) (Google 0.86%)and super microcomputer (SMCI -0.66%) As a top 3 company to bet on.
Even better, if you have spare cash that you don’t need for short-term expenses, you can own any of the three stocks for less than $1,000, giving you access to solid long-term opportunities.
Below, we will explain the investment thesis for each stock.
1. The dominance of AI chips
Nvidia was one of the best-performing stocks in 2023, and it deserves praise. The company’s AI chips have become industry leaders, capturing an overwhelming 90% market share. According to Deloitte, the AI chip market could grow from $110 billion to $400 billion by 2027. This represents incredible growth for a dominant company with company-wide sales of “only” $45 billion in the past year.
Even if your competitors like it AMD scrape off Considering Nvidia’s market share, unless an unexpected and spectacular collapse occurs, Nvidia’s revenue is likely to grow for the next few years. This growth scenario helps explain why the stock has been able to maintain its performance despite soaring 350% over the past three years.
Analysts predict long-term profits to rise 42% annually on the back of growth in artificial intelligence, making Nvidia a good bet, especially for investors looking to buy and hold stocks to realize AI’s potential. The current forward P/E ratio is 51 times, which is almost certainly a reasonable price.
2. The alphabet is a treasure trove of data.
If computing is one half of the AI coin, the data used to train AI models is the other half. Perhaps no company is better at collecting data than Alphabet, which owns and operates two of the world’s most visited websites: Google Search and YouTube. The combined number of visitors in November alone was 280 billion, and the third place was 18 billion.
Alphabet records all visits to its website. Every search, click, and video watch. Alphabet uses data to sell advertising, which makes up most of its revenue and profits. Alphabet can also use AI to leverage data to better promote its AI products, including ChatGPT competitor Bard, and to develop and market its own AI products. Masu.
Investors can comfortably own Alphabet for its advertising business alone, which continues to grow at an impressive rate despite its size. Advertising revenue in the fourth quarter increased 11% year-over-year to a staggering $65.5 billion. This is a golden goose that generates tens of billions of dollars in free cash flow for Alphabet every year. Management can use that cash to buy back stock and increase earnings per share, driving the stock price higher over the long term. Additionally, the potential for AI innovation from within Alphabet also provides upside potential for investors.
3. An important partner for companies investing in AI
Although perhaps not as famous as the companies mentioned above, don’t underestimate Super Micro Computers. The company builds modular server systems for enterprises. Building computer systems for AI and other high-tech applications is not like choosing a product at a store and following instructions. Most companies don’t want to build a system (or don’t know how). Super Micro Computer’s unique hardware and know-how provide solutions to customers.
Super microcomputers benefit from a strong reputation in the technology industry. He has been in business since the early 1990s, when enterprise computing began to gain momentum. Moreover, AI has recently accelerated the growth of super microcomputers to new heights. Sales for the second quarter of 2024 were $3.66 billion, an increase of 103% from the previous year. The 73% growth compared to Q1 sales indicates that the impact of AI on the company’s business may still be in its infancy. Companies are turning to super microcomputers to get their AI systems up and running quickly and efficiently.
The company’s clear AI momentum sent the stock soaring after its second-quarter results, but there may still be room for the stock to rise over the long term. The market has priced the stock at a forward P/E ratio of 27 times, and analysts expect long-term earnings growth to be 25% (forecasts may be revised upwards following a strong second quarter). . This has a PEG ratio of just above 1, indicating that the stock is undervalued relative to its expected growth. Of course, nothing is guaranteed. Still, the reputation of supermicrocomputers appears to be winning AI-related business, and if AI continues to reach its full potential, future investment returns can be expected.
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Justin Pope has no position in any stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, and Nvidia. The Motley Fool recommends Super Micro Computers. The Motley Fool has a disclosure policy.
