AI is making solid progress at Palantir, Alphabet and Amazon.
Artificial intelligence (AI) is a transformative technology, and many businesses are rushing to capture a piece of this rapidly expanding market. Research organization Statista predicts that the AI industry will grow from $136 billion in 2023 to $827 billion by 2030.
At this early stage of the AI revolution, it can be difficult to identify which companies will be able to successfully take advantage of the opportunities it presents in the long term. But among the plethora of businesses fighting for dominance in the space, there are three that make AI stocks worth buying and holding for years as the market grows: Amazon (AMZN -2.33%), the alphabet (GOOGL -1.76%) (GOOG -1.84%)And Palantir Technologies (PLTR 0.44%).
1. Amazon
Amazon may be best known for its e-commerce business, but its use of AI is key to its ongoing success. For example, an e-commerce company has built an AI tool to make it easier for third-party sellers to list their products on Amazon. They enter the URL of the appropriate page on their website into the tool, and the AI automatically extracts products to repost on Amazon's site.
Supporting third-party sellers is important because Amazon generates a substantial portion of its revenue from them. In Q1, the miscellaneous fees Amazon collected from these sellers accounted for $34.6 billion of its $143.3 billion in revenue.
The firm is also leaning on AI as it develops new technologies. For example, Amazon used AI to develop a system that can accurately identify people based on the vein structure of their palms, so customers can now have their hands scanned and then their You can use your palm to pay when shopping at Amazon Fresh and Whole Foods stores. Another example is its Alexa virtual assistant, which relies on AI to understand human speech and perform tasks.
The company's cloud computing division, Amazon Web Services (AWS), provides technology to other businesses to build and run AI models. Customers are increasingly using these AI capabilities, which helped AWS grow 17 percent year-over-year to $25 billion in sales in the first quarter.
Amazon's successes in using AI have already allowed it to achieve a multi-billion dollar revenue run rate from AI, suggesting that these technologies can propel its business for years to come.
2. Alphabet
Alphabet has aggressively pursued AI for years. In fact, as CEO Sundar Pichai has said, “We reconfigured the company around AI.”
Artificial intelligence is part of the company's strategy to fend off competition and maintain its dominance in areas such as digital advertising, where it has about 40% of the market, compared to Amazon's 7%.
Like Amazon, Alphabet is using AI to help other businesses improve their products and build AI models. For example, AI has been injected into Google Search, Google Docs and Google Cloud to improve these products and provide new capabilities, such as helping people write emails.
But what really makes Alphabet an attractive AI investment is the company's efforts to create amazing new technologies to solve society's biggest challenges. One example is the use of AI in its efforts to build the technology needed to harness nuclear fusion. Solving this problem would provide humanity with an almost limitless source of clean energy.
Alphabet is able to fund this type of research because it generates a lot of revenue and free cash flow. In Q1, its sales rose 15% year over year to $80.5 billion, and it generated $16.8 billion in free cash flow.
Thanks to its massive free cash flow, Alphabet can easily afford a dividend, and it finally rewarded investors for the first time in Q1 — a $0.20 per share distribution. Dividends increase your return on investment, and can also provide a source of passive income.
3. Palantir Technologies
As a company focused on data analytics, Palantir is in a strong position to make the most of AI. This is because AI requires a lot of data to successfully make decisions.
But harnessing AI isn't just about having a large pool of data. AI requires that data be organized and validated. How can an organization do this?
Palantir's solution is its Foundry ontology system, which organizes and structures user data by mapping attributes and relationships across all data.
As CEO Alex Karp explains Palantir's approach and competitive advantage: “We're different because to actually make AI work, you need an ontology.”
Palantir's initial efforts focused on assisting the US government in counterterrorism investigations. From that foundation, it has expanded into commercial markets, and last year, it launched the Palantir Artificial Intelligence Platform (AIP).
AIP has been a success, as the US military has chosen Palantir to help build its first AI-powered military vehicle.
AIP helped the company grow its revenue by 17% to $2.2 billion in 2023. And in Q1 2024, sales rose 21% year over year to $634.3 million.
Palantir's Q1 performance suggests its revenue growth rate is accelerating. As a result, management raised its full-year guidance and forecast Q2 revenue to reach at least $649 million, up from $533 million last year.
With advanced technology at their disposal and track records of success, Palantir, Amazon, and Alphabet look like good stocks to buy and hold for investors who want to benefit from the AI industry's growth in the coming years. are
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Robert Izquierdo has positions in Alphabet, Amazon and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon and Palantir Technologies. The Motley Fool has a Disclosure Policy.