Artificial intelligence (AI) is the hot topic in the stock market today. However, the truth is that the majority of wealth from this technology will take decades to trickle through the economy and into investors' portfolios. We are in the early stages of what could be a trillion-dollar industry as soon as the end of this decade.
Don't pass on this opportunity because you think you need a ton of money to make money. In reality, blue chip AI stocksare already emerging, like Advanced Micro Devices (AMD 0.14%), Microsoft (MSFT 0.60%), and Palantir Technologies (PLTR -1.53%). They all have promising AI prospects, and cost less than $500 per share.
Three Fool.com contributors explain below why each stock could potentially be held forever in a diversified portfolio.
AI could drive the next growth phase of this chip stock
Will Healy (Advanced Micro Devices): When it comes to dominance in artificial intelligence (AI) semiconductors, investors tend to look toward Nvidia. However, that stock has been bid to nosebleed valuations, dramatically increasing the risk. It also means that investors may have a more lucrative opportunity in Advanced Micro Devices (AMD).
It is not just that AMD's price-to-sales (P/S) ratio of 12 compares well to the recent 31 P/S ratio of Nvidia. AMD has taken itself from the brink of bankruptcy to industry leader by successfully challenging companies like Nvidia and longtime rival Intel.
Moreover, the company has a huge opportunity in the AI chip market. Allied Market Research believes the AI chip market will grow to $384 billion by 2032, a compound annual growth rate (CAGR) of 38%, compared to a 6% CAGR over the same time frame for the overall semiconductor industry.
It has moved in this direction for a long time. When Lisa Su became CEO in 2014, she shifted AMD's focus to CPUs and GPUs. It so happens that the data centers that support AI depend heavily on both types of processors. The company successfully leveraged this core competency and took a lead over Intel in data center CPU market share growth in 2023.
Additionally, AMD has not surrendered the AI chip business to Nvidia. The AMD Instinct MI300 Series accelerators offer AI-ready technology. This includes the MI300A, an APU (accelerated processing unit) that combines the CPU and GPU in one unit. The company also designed the MI300X, claiming it is the world's most advanced generative AI accelerator.
Furthermore, the chip industry is coming out of a slump. To that end, analysts forecast a 41% increase in net income for the year.
Finally, the stock price increasingly reflects higher sales and optimism regarding the company's AI technology. Over the last year, AMD stock has risen about 125%, and that increase may be just the beginning as AMD capitalizes on the artificial intelligence boom.
Microsoft is wasting no time integrating the latest AI advancements into its iconic software
Jake Lerch (Microsoft): Software giant Microsoft was, for a time, the biggest AI stock of them all, having passed Apple earlier this year to become the world's largest company with a market cap north of $2.8 trillion.
In large part, the surge in Microsoft's market cap can be credited to its investments in artificial intelligence (AI), and its ability to rapidly monetize those advancements.
Case in point: The company recently announced Copilot Pro, a $20/month package billed as a tool to help "Supercharge your creativity and productivity." According to the company, "[Users will] gain priority access to GPT-4 and GPT-4 Turbo during peak times for accelerated performance to generate answers, content, and AI images even faster."
Copilot Pro includes priority access to GPT-4 during peak hours, plus 100 Dall-E image boosts. Moreover, the Pro version also authorizes users to unlock AI-driven tools for Office software, allowing users to draft emails and create presentations using AI.
In short, Microsoft is quickly integrating AI advancements directly into its iconic software franchises -- and boosting its revenue in the process. It's another example of how the company remains at the forefront of the AI revolution and why Microsoft is an AI stock you can hold forever.
Palantir's mission-critical software gives it tantalizing investment longevity
Justin Pope (Palantir Technologies): Investors may not realize just how sticky Palantir's software can be. As Palantir describes in regulatory filings, the company aims to become the "central operating system" for its customers. Its software applies AI and machine learning to process large amounts of data, often from many places, to serve applications ranging from surveillance to supply chain optimization.
Palantir's software makes this happen, so these aren't one-time uses you can drop afterward. That's why Palantir's sales cycle has three phases. Its first phase, Acquire, is where organizations try the software at little to no cost. The latter phases, Expand and Scale, work its software deeper into organizations until they become mission-critical to how they operate.
This is important when considering Palantir's deep relationship with the U.S. government, arguably the only customer in the world with virtually bottomless pockets. The government is more than half of Palantir's revenue today, meaning government spending has grown with Palantir over the years. Palantir's AIP platform launched in 2023, and the system helps customers implement AI into their organizations. CEO Alex Karp has already citedcustomers' strong interest.
Both government and private sector competition seem to be moving toward a place where those who utilize their data will perform the best. Palantir's ability to help its customers get the most out of their data while becoming a central component of day-to-day operations could produce growing and resilient revenue that creates strong shareholder returns for the foreseeable future.
Jake Lerch has positions in Nvidia. Justin Pope has no position in any of the stocks mentioned. Will Healy has positions in Advanced Micro Devices, Intel, and Palantir Technologies. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
As an enthusiast deeply entrenched in the world of artificial intelligence (AI), I find the intersection of technology and the stock market particularly fascinating. My extensive experience and expertise in AI technologies have allowed me to closely follow the developments in the field, especially when it comes to companies integrating AI into their business strategies.
Now, diving into the content you provided, let me break down the key concepts and information related to the mentioned AI stocks: Advanced Micro Devices (AMD), Microsoft (MSFT), and Palantir Technologies (PLTR).
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Advanced Micro Devices (AMD):
- Overview: AMD has emerged as a significant player in the AI semiconductor industry, challenging competitors like Nvidia and Intel. The company's focus on CPUs and GPUs positions it well in the AI chip market.
- Financials: AMD's price-to-sales (P/S) ratio of 12 compares favorably to Nvidia's recent P/S ratio of 31. The AI chip market is predicted to grow to $384 billion by 2032, presenting a substantial opportunity.
- Leadership: Under CEO Lisa Su's leadership since 2014, AMD shifted its focus to CPUs and GPUs, gaining a lead over Intel in data center CPU market share growth in 2023.
- Product Offerings: AMD's Instinct MI300 Series accelerators, including the MI300A and MI300X, demonstrate the company's commitment to AI-ready technology.
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Microsoft (MSFT):
- Market Position: Microsoft, with a market cap surpassing $2.8 trillion, has become a leader in the AI space. The company's investments in AI have contributed significantly to its market cap growth.
- Product Integration: Microsoft is actively integrating AI advancements into its iconic software franchises. The recent introduction of Copilot Pro showcases how AI is enhancing creativity and productivity in software tools.
- Revenue Boost: Microsoft's ability to monetize AI advancements, such as offering priority access to GPT-4 in subscription packages, contributes to revenue growth.
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Palantir Technologies (PLTR):
- Software Impact: Palantir's software, designed to be the "central operating system" for its customers, applies AI and machine learning to process large amounts of data for various applications.
- Sales Cycle: Palantir's sales cycle involves three phases—Acquire, Expand, and Scale. The software becomes mission-critical to organizations, leading to long-term engagements.
- Government Relationship: Palantir's deep relationship with the U.S. government, a significant portion of its revenue, provides stability. The launch of the AIP platform in 2023 further supports customer interest in implementing AI.
In conclusion, these companies showcase diverse approaches to AI integration, from semiconductor manufacturing (AMD) to software development (Microsoft) and mission-critical applications (Palantir). Each presents unique opportunities for investors looking to capitalize on the growing influence of AI in various industries.
