These two players look pretty cheap…
Artificial intelligence (AI) stocks offer a compelling investment theme because we’re at the beginning of what could be a game-changing story. It can potentially change how we manage our daily tasks, make companies more efficient, and lead to major discoveries in areas like healthcare. JPMorgan Chase chief executive officer Jamie Dimon has even likened AI to transformations such as the printing press and electricity.
This means getting in on certain high-potential AI companies today — when their shares are reasonably priced — could represent a once-in-a-decade investment opportunity. The AI market is forecast to grow from $200 billion today to potentially $1 trillion by 2030, and these companies’ stock prices may take off as more and more investors recognize the earnings potential. As a result, the stocks could become much more expensive than they are today.
That’s why now represents the perfect moment to shop around for solid AI players, and these two should be at the top of your buy list.
Image source: Getty Images.
1. Alphabet
Alphabet (GOOG -1.40%) (GOOGL -1.43%) is probably best known for its crown jewel, Google Search. The search engine is the world’s No. 1, holding more than 90% share, and that has equaled a revenue powerhouse for Alphabet. Advertisers flock to the platform to reach Google Search users, generating billions of dollars in revenue for the company.
Over the past few years, Alphabet has plunged into the world of AI, using the technology to improve Google Search and selling its AI tools to customers of Google Cloud, its cloud computing business. So, AI may help Alphabet attract more advertising dollars if Google Search becomes even stronger and we spend more time using it…and AI is already generating revenue for Alphabet through the cloud business.
In fact, Alphabet said during its latest earnings report that its AI Infrastructure and Generative AI Solutions already brought in billions of dollars in revenue this year. The cloud business showed double-digit growth in revenue and triple-digit growth in operating profit in the quarter, with those figures reaching the milestones of $10 billion and $1 billion, respectively.
Meanwhile, shares of Alphabet remain reasonably priced, trading at 21x forward earnings estimates, offering you a terrific opportunity to get in early on this potentially explosive AI growth story.
2. Meta Platforms
Meta Platforms (META -3.15%) chief executive officer Mark Zuckerberg has been very straightforward about his AI ambitions. His goal is to make Meta an AI leader and he’s poured investment dollars into developing large language models, training them, and using them to fuel products like AI assistants. Zuckerberg says he hopes one day Meta will offer users assistants for all their needs, from leisure to professional.
We may expect other AI-based products and services from Meta, considering the company’s commitment to exploring the technology. Meta has made AI its biggest investment area of this year, with the company bringing on board 600,000 graphics processing units. The tech giant is one of the main customers of top chip designer, Nvidia, and also has developed its own chips as it goes all in on this technology.
It’s also important to remember that as Meta invests in this high-growth area, the company continues to generate billions of dollars in earnings thanks to its ownership of Facebook, Messenger, WhatsApp, and Instagram. Like Alphabet, it makes most of its revenue through advertising, and also like Alphabet, if AI helps improve its product — in this case social media apps — advertising revenue could climb.
Today, Meta shares trade for 27x forward earnings estimates, which looks like an absolute steal considering the company’s position in the high-growth area of AI as well as its solid earnings track record and financial position — this year Meta even started paying a dividend, showing it can afford to fund growth and reward shareholders. And all of this means that now may represent a valuable opportunity to get in on this top AI story.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, JPMorgan Chase, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
