AI is driving measurable growth for Palantir, Alphabet, and Amazon.
Artificial intelligence (AI) is a transformative technology, and many companies are rushing to grab a piece of this rapidly expanding market. Research firm Statista predicts 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 hard to tell which companies will be well positioned to capitalize on the opportunity in the long term, but among the many companies battling to dominate the space, three stand out as compelling AI stocks to buy for years to come as the market grows: Amazon (AMZN -2.33%), alphabet (Google -1.76%) (Google -1.84%)and Palantir Technologies (supplement 0.44%).
1. Amazon
Amazon may be best known for its e-commerce business, but the key to the company's continued success is its use of AI. For example, the e-commerce giant created an AI tool that makes it easy for third-party sellers to list products on Amazon. Sellers simply enter the URL of the appropriate page on their website into the tool, and the AI automatically extracts the products and relists them on Amazon's site.
Helping third-party sellers is key for Amazon, who make up a significant portion of its revenue: In the first quarter, Amazon collected $34.6 billion in various fees from these sellers out of its $143.3 billion in revenue.
The company is also using AI to develop new technologies. For example, Amazon has used AI to develop a system that can accurately identify people based on the vein structure of their palms. This allows customers to scan their hands and pay with their palm when shopping at Amazon Fresh and Whole Foods stores. Another example is the Alexa virtual assistant, which uses AI to understand human speech and perform tasks.
Its cloud-computing division, Amazon Web Services (AWS), provides technology to other companies to build and run AI models. Customers are increasingly taking advantage of these AI capabilities, which helped AWS grow its first-quarter revenue to $25 billion, up 17% year over year.
Amazon has been successful in leveraging AI and has already generated billions of dollars in revenue from it, suggesting that these technologies have the potential to drive business forward for years to come.
2. Alphabet
Alphabet has been a big advocate of AI for years. In fact, CEO Sundar Pichai said, “We've rebuilt our company around AI.”
Artificial intelligence is part of the company's strategy to fend off competition and maintain an advantage in areas such as digital advertising, where Amazon has about 40% market share compared to Amazon's 7%.
Like Amazon, Alphabet also uses AI to improve its own products and help other companies create AI models. For example, it has built AI into Google Search, Google Docs, and Google Cloud to improve these products and provide new features, such as helping with composing emails.
But what makes Alphabet a truly compelling AI investment is its commitment to creating amazing new technologies to solve society's greatest challenges, such as its use of AI in its efforts to build the technology needed to harness nuclear fusion, which would provide humanity with a nearly unlimited source of clean energy.
Alphabet can fund this kind of research because it generates huge revenue and free cash flow: First-quarter sales rose 15% year over year to $80.5 billion, and free cash flow was $16.8 billion.
Alphabet can afford to pay dividends thanks to its massive free cash flow, and in the first quarter it paid investors $0.20 per share in dividends. Dividends can boost your investment return and serve as a passive income stream.
3. Palantir Technologies
As a company focused on data analytics, Palantir is well-positioned to make the most of AI, which requires large amounts of data to make good decisions.
But AI doesn't just require a ton of data – it also requires that data be organized and accurate. How can organizations ensure this?
Palantir's solution is the Foundry Ontology system, which organizes and structures customers' data by mapping properties and relationships across the data.
CEO Alex Karp explained Palantir's approach and competitive advantage: “We're differentiating ourselves because to make AI actually work, you need ontology.”
Palantir's early efforts were focused on supporting the U.S. government's counterterrorism investigations, and the company has built on this foundation to expand into the commercial market, launching the Palantir Artificial Intelligence Platform (AIP) last year.
AIP has been a success, as evidenced by the U.S. Army's selection of Palantir to build the first AI-enabled military vehicle.
AIP helped the company boost its revenue by 17% to $2.2 billion in 2023. It also saw first-quarter 2024 sales increase 21% year over year to $634.3 million.
Palantir's first-quarter results suggest the company's revenue growth rate is accelerating, leading management to raise its full-year outlook and predict that second-quarter revenue will reach at least $649 million, up from $533 million a year ago.
With cutting-edge technology and a track record of success, Palantir, Amazon, and Alphabet look like good stocks to buy and hold for investors who want to benefit from the upcoming growth of the AI industry.
Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool's board of directors. Robert Izquierdo has invested in Alphabet, Amazon, and Palantir Technologies. The Motley Fool has invested in and recommends Alphabet, Amazon, and Palantir Technologies. The Motley Fool has a disclosure policy.
