Top 3 AI Stocks to Invest $1,000 in and Hold for the Long Term

It’s evident that artificial intelligence (AI) is not only a sensation in the stock market but also an extraordinary innovation that will impact the world in numerous ways. As indicated by a PricewaterhouseCoopers (PWC) study, AI could contribute over $15 trillion in economic value to the global economy by 2030.

Finding and retaining the companies propelling AI’s growth could potentially yield significant returns for long-term investors. That’s why I made it my goal to locate them. While future outcomes are uncertain, today’s top contenders seem to be Nvidia (NVDA 4.97%), Alphabet (GOOGL 0.86%) (GOOGL 0.86%), and Super Micro Computer (SMCI -0.66%) as three leading companies to invest in.

Moreover, if you have some extra funds that you don’t need for immediate expenses, you can acquire any of the three stocks for under $1,000, providing you with access to solid long-term opportunities.

Below, I’ll elucidate the investment rationale for each stock.

1. The predominant influence in AI chips

Nvidia was one of the top-performing stocks in 2023, and it rightfully received accolades. The company’s AI chips have become the unrivaled industry leader, capturing a commanding market share as high as 90%. According to Deloitte, the AI chip market could expand to between $110 billion and $400 billion by 2027. This signals 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 market share, Nvidia’s revenue is likely to continue growing for years, unless there is an unforeseen and catastrophic collapse. This growth outlook helps to explain why the stock can continue performing well despite having surged 350% over the past three years.

Analysts project that long-term earnings will grow at a compound annual rate of 42% due to the growth of artificial intelligence, making Nvidia’s current forward P/E of 51 a reasonably attractive price, especially for investors planning to purchase and hold the stock to capitalize on AI’s potential.

2. Alphabet possesses a data gold mine

If computing is one half of the AI coin, data, on which AI models are trained, would be the other. Arguably, no company is better at collecting data than Alphabet, which owns and operates the world’s two most visited websites, Google Search and YouTube. They collectively garnered 280 billion visits in November alone, compared to 18 billion for the third-place website.

Alphabet is capturing every visit to its websites. Every search, click, and video view. It uses this data to sell advertisements, which is how Alphabet generates most of its revenue and profit. It also positions Alphabet as the leading authority to leverage its data with AI to enhance advertising or create and sell its AI products, including ChatGPT competitor Bard.

Investors can confidently hold Alphabet for its advertising business alone, which continues to display impressive growth despite its size. Ad revenue increased by 11% year-over-year in Q4, reaching an impressive $65.5 billion. It’s a lucrative revenue source that generates tens of billions of dollars in free cash flow annually for Alphabet. Management’s use of that cash to repurchase shares and boost earnings per share provides the stock with a strong long-term foundation. Additionally, the potential for AI innovation from within Alphabet presents investors with potential upside.

3. A fundamental ally for businesses investing in AI

Perhaps not as well-known as the aforementioned companies, but do not underestimate Super Micro Computer. The company constructs modular server systems for corporations. Designing a computer system for AI or other high-tech applications is not as simple as picking it out at the store and following the instructions. Most companies do not want to (or know how to) build their systems. Super Micro Computer’s exclusive hardware and expertise offer its customers a solution.

Super Micro Computer benefits from a positive reputation in the tech industry; it has been operating since the early 1990s when corporate computing began gaining momentum. Furthermore, AI has recently propelled Super Micro Computer’s growth to new heights. Its Q2 revenue for fiscal year 2024 surged by 103% year-over-year to $3.66 billion. Its 73% growth over Q1 revenue indicates that AI’s impact on its business may still be in the early stages. Companies are turning to Super Micro Computer to swiftly and efficiently get AI systems up and running.

The company’s clear AI momentum prompted a significant leap in the stock price after its Q2 earnings, but the stock could still have room to grow over the long term. The market is valuing 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 represents a PEG ratio of just over 1, suggesting that the stock is undervalued given its anticipated growth. Of course, nothing is guaranteed. Nevertheless, it seems that Super Micro Computer’s reputation is securing AI-related business, indicating favorable returns on investment in the future if AI continues to deliver on its potential.

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.

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