These companies are winning now and should continue to win for the foreseeable future.
do not allow NvidiaIts wild popularity distracts you from the fact that there are many types of artificial intelligence (AI) stocks to choose from. Companies in industries ranging from chips to software are poised to feel the tailwinds of AI growth over the next few years.
Investors can position themselves for success by gravitating toward the true winners, the cream of the crop that are equipped to stay on top as the AI industry inevitably grows and evolves. Three Fool.com contributors did their homework and came up with Amazon (AMZN -0.29%), Qualcomm (QCOM 1.29%)AND Meta Platforms (META -2.70%). These companies have the competitive edge to win in the long run — and their stock can be bought for as little as $1,000.
1. Amazon: Modest valuation makes it attractive
Jake Lerch (Amazon): My choice is Amazon. If I am making a choice today regarding an AI stock to buy and hold forever, I have to consider the valuation. Simply put, AI stocks have been on a wild ride, and some of them are now reaching dangerously high valuation levels.
Consider this table:
NVDA PS report data according to YCharts
The three largest companies in the world — Apple, Microsoft, and Nvidia — are at or near 10-year highs when it comes to their price-to-sales (P/S) ratios. This ratio is important because it captures market sentiment, reflecting investors’ expectations for future growth, rather than quarter-to-quarter fluctuations in a company’s earnings results, which is what price-to-earnings ratios tend to do (P /E).
The bottom line is that many AI stocks are rising to new highs in the future the expectations of gROWTH, rather than actual sales. However, there are AI companies that are opposing this trend, or in at least, they are an example where the size of GROWTH it’s not that big.
Here’s the same chart, with Amazon’s P/S ratio included.
NVDA PS report data according to YCharts
With a current P/S ratio of 3.6x, Amazon’s valuation is a fraction of Nvidia’s (41.8x); it’s also much lower than Microsoft’s (14.6x) or Apple’s (9.4x). Importantly, Amazon’s current P/S ratio is roughly equal to its 10-year average of 3.2x, indicating a stable valuation over time.
In other words, while some of its main competitors’ stocks have come out ahead during the AI boom, Amazon’s stock still looks very attractive.
Additionally, the company has numerous AI initiatives, ranging from smart speakers to its fleet of nearly 1 million humanoid robots. These initiatives, along with Amazon’s strong financial position, indicate that it is well positioned to take advantage of the AI revolution and potentially experience significant growth.
In summary, investors looking for an AI stock to buy and hold forever should strongly consider Amazon.
2. Qualcomm: Build a link to this stock
Will Healy (Qualcomm): Over the past year, investors have focused on AI chips. However, just because Nvidia leads the industry doesn’t mean it’s the only player. With an increased focus on AI, investors may have more reason to consider Qualcomm a lifetime hold.
Qualcomm has long served as the leader in smartphone chips, and maintaining that leadership in today’s market means prowess in AI. Fortunately, the company has embraced AI in the device. This works in collaboration with cloud AI and its devices, which reside at the edge. Thus, it can deliver AI capabilities more quickly and efficiently.
Moreover, Qualcomm does not limit these capabilities to smartphones. In recent years, the company has worked to deliver its technology in IoT devices, automotive platforms and PC chips, leading to an AI-powered technology ecosystem.
Additionally, after a revenue decline in fiscal 2023, Qualcomm is finally starting to recover. In the first six months of fiscal 2024 (ended March 24), revenue of $19 billion was up 3% compared to the same period a year earlier.
Also, total costs and expenses fell 1%, leading to a net income of $5.1 billion in the first half of the fiscal year. This represents a 29% increase from the previous year’s levels. Also, since Qualcomm is forecasting $9.2 billion in revenue in the middle of the fiscal third quarter, its revenue growth rate could reach double digits next quarter.
Investors have been paying close attention as the semiconductor stock has surged nearly 80% over the past year. That pushed its P/E ratio to around 28, its highest level in more than three years.
However, assuming double-digit earnings growth returns, earnings growth should reduce the impact of its valuation increase. Ultimately, improving financials, along with Qualcomm’s growing importance in the AI space, should solidify its stock as a profitable long-term hold.
3. Meta Platforms: AI is complementary
Justin Pope (Meta Platforms): As I searched for the ultimate buy and hold AI stock, Meta Platforms kept rising to the top of my list. The step for Meta shares is simple but effective. The company is already a clear technology juggernaut today. It makes money from digital ads served to 3.24 billion daily active users on its social media apps: Facebook, Instagram, WhatsApp and Threads.
It is a profitable business; Meta converts 35% of its revenue to free cash flow and earns an impressive 29% return on capital invest in business.
The meta still offers plenty of upside despite its $1.3 trillion market cap. Analysts believe the company will grow earnings by an average of 18% per year over the long term. AI can play a big role in this. Meta has released AI to improve its advertising business and to increase profits.
Moreover, the company has invested a lot IN AI infrastructure, spending billions of dollars to develop and run generative AI models.
The best thing about Meta is that AI will not make or break stocks. AI may unlock the growth needed for Meta to remain a long-term market winner, but it was already a great business before AI. Meta’s CEO and co-founder Mark Zuckerberg is still at the helm, and he’s only 40 years old. You can buy and hold Meta, knowing that the company is in good hands for the foreseeable future.
Lastly, the stock remains attractive with a P/E ratio of 26 times earnings, a very reasonable price for a business that grows revenue by 18% per year. Many other AI stocks have become very expensive, which means Meta could perform much better if it realizes its AI potential.
This ultimately makes Meta a no-brainer AI stock investor should buy and hold.