Investors will likely remember 2023 as the year artificial intelligence (AI) took off. While tech giants have been using the technology for years, investors turned back to these stocks when they realized the power of OpenAI’s ChatGPT.
AI is expected to advance technology worldwide over the next decade and beyond. Many companies that have gained a foothold in this space should sustain their AI-powered share price gains over the long term Nvidia (NVDA -0.01%), Palantir (PLTR 1.10%) and alphabet (GOOGL -0.51%) (GOOG -0.45%) are three stocks in particular that should provide investors with significant returns.
If you have $1,000 to invest, meaning you don’t need it for bills in the short or medium term, have paid off high-interest debt, and have your emergency fund set up, consider investing in these three stocks.
Nvidia is the king of the AI hill
Jake Lerch (Nvidia): Let’s face it: no company has benefited more from the AI revolution than Nvidia. Its shares are up a staggering 227% year-to-date. Looking at the longer term, Nvidia stock has skyrocketed over the past five years: a $10,000 investment made at the end of 2018 would be worth an incredible $120,000 today.
Nvidia makes the processors that power today’s cutting-edge generative artificial intelligence applications. ChatGPT by OpenAI, Adobe‘s Firefly, and MicrosoftThe 365 Copilot from 365 is based on Nvidia chips, among many others.
Additionally, far more AI applications are on the way. During Nvidia’s recent earnings call, Chief Financial Officer Colette Kress put it this way: “Most major consumer internet companies are looking to advance the use of generative AI. The corporate wave of AI adoption begins now.”
While tech titans like it Metaplatforms, alphabetMicrosoft and Amazon are leading the way, AI has become crucial in a variety of industries. Tesla needs AI to develop autonomous driving systems. Pharmaceutical companies hope that AI will lead to breakthroughs in the treatment of diseases. Companies like FedEx And UPS use AI to optimize logistics.
You get the point: AI will drive the next wave of innovation.
As a result, Wall Street expects a financial win for Nvidia. Its sales and profit forecasts have already skyrocketed, but continue to rise as demand for the company’s chips outstrips supply. The estimates for sales for the next financial year are through the roof. Analysts now expect the company to generate sales of around $89 billion. Nvidia generated less than $45 billion in the last 12 months.
NVDA revenue estimates for next fiscal year data from YCharts.
The AI revolution is just beginning, and for investors looking for a way to be part of it for a decade or more, Nvidia is the stock to buy.
Palantir proves the value of its products
Justin Pope (Palantir Technologies): Investors have been interested in the software company Palantir Technologies since its IPO at the end of 2020. Part of Palantir’s appeal comes from its secret collaboration with U.S. government agencies and the military. But the company’s progress in 2023 has gone a long way toward proving it deserves the hype.
First, Palantir is gaining traction in the private sector. Its software platforms, particularly Foundry, combine data analytics and AI to identify trends and support decision-making. For example, this can lead to improved supply chain efficiency for manufacturers and better detection of bank fraud. The use cases are seemingly endless.
Palantir’s U.S. commercial customer base grew 37% year-over-year in the third quarter, setting the stage for potentially robust long-term revenue growth. However, Palantir’s contracts can span years, meaning there may be delays between a customer signing a contract with Palantir and the realization of significant invoiced revenue from the business.
The momentum also remained strong in the government segment. Palantir recently won a five-year contract with the UK’s National Healthcare Service worth over $400 million. Deals like this show that companies are choosing Palantir to solve complex problems. Investors will still need to keep an eye on the company’s customer pipeline, but there appears to be concrete demand for its services.
Financially, Palantir is rock solid. It converts over 20% of revenue into free cash flow and is profitable based on generally accepted accounting principles (GAAP). The company’s balance sheet is $3.2 billion in cash and has no debt. That’s a war chest it can use to further invest in growth or make bolt-on acquisitions.
Palantir’s future looks bright, so it’s a no-brainer to hold the stock for at least the next decade.
Alphabet is big, but has room to grow
Will Healy (alphabet): Even though Google parent Alphabet became an AI first company seven years ago, many wondered whether it could match ChatGPT’s capabilities when that application launched. Additionally, with the market cap already at $1.7 trillion, one might wonder whether the days of massive growth are over.
However, it is probably far too early to count out Alphabet. The company soon responded to ChatGPT by releasing Google Bard. Unlike ChatGPT, Bard can rely on Google’s knowledge base to write articles or code. It also draws on the company’s extensive AI portfolio, which has powered each of its products since its “AI first” declaration.
Additionally, with the emphasis on revenue from Google advertising and, more recently, Google Cloud, investors might easily forget that Alphabet owns numerous other companies, such as Verily Life Sciences and autonomous driving company Waymo.
Additionally, the company has approximately $120 billion in cash and short-term investments to invest in all of these companies. Additionally, the company generated free cash flow of $62 billion in the first nine months of 2023. With so much money available to invest in AI, it is unlikely to lag behind for long.
Alphabet’s share price is up around 55% since the start of the year, putting its price-to-earnings ratio at around 26. While this valuation is well above the company’s record low, the stock has often traded at significantly higher earnings metrics. Given its P/E ratio and its nearly unmatched ability to invest in its companies, Alphabet’s AI expertise will likely continue to make its shareholders richer.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jake Lerch has positions at Adobe, Alphabet, Amazon, Nvidia, Tesla and United Parcel Service. Justin Pope has no position in any of the stocks mentioned. Will Healy holds positions at Palantir Technologies and Snowflake. The Motley Fool has positions in and recommends Adobe, Alphabet, Amazon, FedEx, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, ServiceNow, Snowflake and Tesla. The Motley Fool recommends United Parcel Service and recommends the following options: long January 2024 calls for $420 on Adobe and short January 2024 calls for $430 on Adobe. The Motley Fool has a disclosure policy.