It’s evident that artificial intelligence (AI) isn’t simply a stock market phenomenon but an extraordinary innovation that will influence the world in numerous ways. According to a PricewaterhouseCoopers (PWC) study, AI could yield over $15 trillion in economic value to the global economy by 2030.
Identifying and maintaining the companies propelling AI’s growth could prove very profitable for long-term investors. This is why I endeavored to discover them. While anything can occur in the future, today’s premier choices seem to be Nvidia (NASDAQ: NVDA), Alphabet (NASDAQ:GOOG)(NASDAQ: GOOGL), and Super Micro Computer (NASDAQ: SMCI) as three foremost companies to rely on.
Even better, if you have some extra cash that you don’t need for immediate expenses, you can possess any of the three stocks for under $1,000, granting you access to robust long-term opportunities.
I will delineate the investment thesis for each stock below.
1. The supreme force in AI chips
Nvidia was among the best-performing stocks in 2023, but it merits the praise it’s received. The company’s AI chips have become the runaway industry leader, securing a dominant market share as high as 90%. According to Deloitte, the AI chip market could expand to between $110 billion and $400 billion by 2027. That indicates tremendous growth for the dominant player, which has achieved “just” $45 billion in companywide sales over the past year.
Even if competitors like AMD erode Nvidia’s share, Nvidia’s top line will likely grow for years, unless there is an unforeseen and epic collapse. That growth scenario helps elucidate why the stock can continue to perform despite escalating 350% over the past three years.
Analysts estimate long-term earnings will compound 42% annually on the back of artificial intelligence growth, making Nvidia’s current forward P/E of 51 a plausibly reasonable price, notably for investors intending to buy and hold the stock to capitalize on AI’s potential.
2. Alphabet possesses a data gold mine
If computing comprises one half of the AI coin, data, on which AI models train, would be the other. Conceivably, no company is more adept at capturing data than Alphabet, which owns and operates the world’s two most visited websites, Google Search and YouTube. They united for 280 billion visits in November alone, compared to 18 billion for third place.
Alphabet captures every visit to its websites. Every search, click, and video view. It applies its data to vend advertisements, which is how Alphabet garners most of its revenue and profit. It also places Alphabet at the forefront to use its data with AI to advertise more effectively or develop and sell its AI products, including ChatGPT competitor Bard.
Investors can possess Alphabet in confidence for its ad business alone, which continues to display impressive growth despite its size. Ad revenue grew 11% year-over-year in Q4, achieving an astounding $65.5 billion. It’s a golden goose producing tens of billions of dollars of free cash flow annually for Alphabet. Management’s use of that cash to buy back shares and grow earnings per share affords the stock a high long-term floor. Furthermore, the potential for AI innovation from within Alphabet offers investors upside potential as well.
3. An essential partner for businesses investing in AI
Perhaps not as widely known as the companies surpassing it, don’t undervalue Super Micro Computer. The company fabricates modular server systems for corporations. Creating a computer system for AI or other high-tech applications isn’t akin to selecting it out at the store and following the instructions. Most companies don’t want to (or know how to) construct their systems. Super Micro Computer’s proprietary hardware and expertise provide its clients with a solution.
Super Micro Computer benefits from a solid reputation in the tech industry; it’s been in business since the early 1990s when corporate computing started to gain momentum. Additionally, AI has recently accelerated Super Micro Computer’s growth to new heights. Its Q2 revenue for fiscal year 2024 grew 103% year-over-year to $3.66 billion. Its 73% growth over Q1 revenue implies that AI’s impact on its business could still be in the initial stages. Companies are turning to Super Micro Computer to quickly and efficiently get AI systems up and running.
The company’s conspicuous AI momentum prompted the stock to soar after its Q2 earnings, but the stock still could have room to grow over the long term. The market is pricing the stock at 27 times forward earnings, and analysts project a 25% long-term earnings growth (estimates may be revised upwards after such a strong Q2). That’s a PEG ratio of just over 1, suggesting the stock is inexpensive for its expected growth. Of course, nothing is guaranteed. Still, it seems that Super Micro Computer’s reputation is gaining AI-related business, which augurs well for future investment returns if AI continues delivering up to its potential.
Should you invest $1,000 in Nvidia right now?
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Suzanne Frey, an executive at Alphabet, 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 has positions in and recommends Advanced Micro Devices, Alphabet, and Nvidia. The Motley Fool recommends Super Micro Computer. The Motley Fool has a disclosure policy.
3 Artificial Intelligence (AI) Stocks to Buy With $1,000 and Hold for Decades was originally published by The Motley Fool