Investors should closely monitor technology trends and business ideas in the burgeoning artificial intelligence (AI) market. In this quick review of three great AI investment ideas, Fool.com's panel of contributors highlights some of the established and promising tech giants in the space.
These stocks are also relatively affordable, and today's hottest companies are at the forefront of AI innovation while also offering fantastic investment opportunities.
The slow-moving Nvidia customer base has grown by more than 50% in a year, and could contribute even more.
Nicholas Rossoliro (Amazon): E-commerce and cloud infrastructure providers Amazon (Nasdaq: AMZN) Its shares have risen by more than 50% in the last year, and recently hit a new all-time high after a bear market hit it hard. But despite its economic power, Amazon's market capitalization is low at $2 trillion, and it currently ranks fifth among the “Magnificent Seven” stocks. Microsoft, NVIDIA, appleand alphabet (Nasdaq: GOOG)(Nasdaq: GOOGL).
Though it lags in overall size, Amazon still generates far more revenue than other tech companies.. Amazon is approaching $600 billion in annual sales, with Apple a distant second with roughly $380 billion in trailing 12-month sales.
Why is there a gap in Amazon's valuation given its ample revenues? The reason is simple: the majority of its revenue comes from extremely low-margin e-commerce sales. The GAAP operating margins for its two e-commerce divisions, North America and International, were just 5.8% and 2.8%, respectively, in Q1 2024.
But in this new age of AI, Amazon is looking to change that. The company is building billions of dollars worth of new AI data centers, which it plans to outfit with lots of Nvidia high-speed computing systems. What's the promise of such an endeavor? Amazon will harness the power of AI to gradually convert more of those sales into real profits for shareholders.
We are in a very strong position and I believe this strength will help us generate significant benefits for years to come. We are already seeing the first results of this effort.
Amazon's operating profits have grown nearly 170% over the last 12 months to more than $47 billion, which is why its stock price has soared recently, but those profits could be even higher if the company's AI plans pan out.
Amazon shares are trading at 46 times trailing 12-month free cash flow, and I'm happy to continue to hold this position going forward.
AI stocks, which fell sharply in 2024, are showing signs of recovery
Billy Duberstein (Intel): In contrast to most other AI stocks that have soared this year. Intel (Nasdaq: INTC) Still, that represents a 33% drop from the previous year.
The company's struggles are well known: Intel lost its edge in chip-making process technology nearly a decade ago and has been losing market share to rivals ever since. And new CEO Pat Gelsinger is trying to spend heavily to turn it around even as Intel's core PC and datacenter chip business struggles.
However, the second half of 2024 could be a turning point where most of these headwinds turn into tailwinds. Companies are entering a huge PC cycle from 2020 to 2021, the Windows 10 operating system will no longer be supported next year, and the emergence of “AI PCs” means all of these factors are likely to support a recovery in the PC industry starting in the second half of the year.
Additionally, several bullish reports from Taiwanese server makers last month suggested the decline in non-AI servers appears to have bottomed out and is beginning to recover, which should benefit Intel's data center business.
Intel also expects about $500 million in revenue from its Gaudi accelerator, an AI training chip, later this year, which would be Intel's first significant Gaudi revenue.
But most importantly, the company continues to execute on its “five nodes in four years” turnaround plan, which aims to see Intel regain process leadership by next year while also winning over third-party foundry customers.
The news on that front is promising: In June, Intel announced that it was on schedule to begin mass production of Intel 3, the third of five nodes in a four-year plan, a major milestone in equipping its process technology for data center applications.
The next two nodes are the Intel 20A and 18A, both of which incorporate two innovations – gate-all-around transistors and backside power, which places the power inputs and outputs at the back of the chip, leaving space at the front for computing power. This is where things will become a reality and where Intel plans to catch up. Taiwan Semiconductor Manufacturing IProcess technology.
Intel's market capitalization is seven times smaller than Taiwan Semiconductor Corp. If Intel hits its 18A target as scheduled in late 2024 or early 2025, its stock price could rise further in a “catch-up” trade with other AI winners.
Alphabet: Affordable, long-lasting AI reader
Anders Bylund (Alphabet): The stock market today is full of potential AI winners, but I'd rather own the highest quality stocks that have very strong long-term prospects and happen to be established leaders in AI technology, which is what Google's parent company, Alphabet, offers.
In my opinion, Alphabet is the best AI stock to own, even with its stock price soaring 58% over the past year. The tech giant is a company that's here to stay.
Managed by the Google DeepMind group, the company's AI capabilities continue to push the boundaries of innovation. DeepMind rewrote the rules of chess engines in 2017, but it didn't stop there. The latest developments in Google AI capabilities demonstrate a relentless effort to stay ahead of the game. Gemini large-scale language models (LLMs) continue to get faster and more powerful, while the Veo generative video creator and Imagen 3 image generator have set new standards for AI-based media quality.
I don't believe AI will be a viable competitor to Alphabet's traditional core business. Despite all the talk about generative AI as an alternative to traditional search engines, Google Search remains the undisputed leader, capturing 91.1% of the global market and increasing first-quarter profits by nearly 60%. And I'm confident that Google Search users will walk away happier, having avoided the potential “hallucinations” of an overly creative AI system.
What makes this deal truly attractive is Alphabet's valuation: a P/E of 28.5, P/S of 7.2, and P/F of 33.2, making it a bargain compared to Nvidia's sky-high valuation. Alphabet is more than just another company in the AI space; it started shaping the future of AI long before ChatGPT and is still leading the race.
From cutting-edge AI research to practical applications in search, cloud, and even drug discovery, Alphabet is a smart, sustainable choice for the long term. The stock never looks overvalued, and its diversified revenue streams ensure it will endure for decades to come. You won't miss Alphabet's AI train when it leaves the station.
This stock is a long-term buy at just about any price. and These versatile stocks don't look all that expensive today, and they've even come with modest dividends lately, making them attractive to value and income investors.
Should I invest $1,000 in Amazon right now?
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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. Anders Bylund has invested in Alphabet, Amazon, Intel and Nvidia. Billy Duberstein has invested in Alphabet, Amazon, Apple, Intel, Microsoft and Taiwan Semiconductor Manufacturing. Nicholas Rossolillo has invested in Alphabet, Amazon, Apple and Nvidia. The Motley Fool has invested in and recommends Alphabet, Amazon, Apple, Microsoft, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The post Future-Proof Portfolio: 3 Low-Cost AI Stocks to Buy in July was originally published by The Motley Fool.
