For those of you that have been following us over the last 6-8 months, you know that we have been calling the AI trend for at least that long. In fact, I think we have been ahead of the curve in saying that AI is really going to be HUGE for investors of AI stock.
Whether, just like the dotcom bubble before it, it is is going to be the hot AI stock…or in fact how AI Indicators have a real chance to change the markets for good….we write about AI at least once a week.
In fact, we got an email a few weeks back with someone saying “Ok, we get it. You believe in AI, but is there something else you can write about?”
I read that and just laughed. There is a reason we like AI and it’s not because we enjoy playing with it. In fact, I personally only use one AI app and that is one that makes pretty pictures of my wife.
She likes it and I like to make her smile.
But let’s talk about some investing, because it’s a Monday and that means it’s time to try to make some money.
Today we are going to talk about long-term compounding.
Long-term compounding, according to suredividend.com is
The power of long-term investing comes from the compounding of wealth over time. Each year your gains from previous years will compound along with your principal. Over time this results in phenomenal capital growth
It’s not as sexy as getting in and out of a stock in three hours and making 50% on your money, but let’s be honest here; that rarely happens. Most wealth is built through compounding.
A good place to look for long-term compounding is artificial intelligence.
Some of today’s most fascinating technological innovations are powered by artificial intelligence (AI).
If you are a long-time reader here, you’ve definitely heard of OpenAI’s ChatGPT, because we talk about it a lot.
It is essentially a natural language processor that is powered by AI and, like I said, we were among the first publications to really get into how exciting this would be for investors in the future.
Chat GPT can understand straightforward questions and provide surprisingly thorough answers. According to a recent forecast by International Data Corp. (IDC), spending on AI technology increased by 20% in 2021 to reach $383 billion, and was projected to reach $450 billion in 2022.
That is a huge number folks.
For a number of reasons, businesses are heavily investing in AI.
AI has the potential to increase labor productivity, raise operational effectiveness, hasten innovation, and create more useful products for consumers. Companies that can reap these advantages will be best positioned to stay one step ahead of rivals and, as a result, reward investors. Because of this, it is likely that in the future, every company will employ AI in some capacity.
Today, we’ll focus on three major companies that use this technology: Alphabet, Amazon, and Advanced Micro Devices.
We’ll examine how these companies are utilizing AI to expand their individual businesses and why you might want to think about adding shares to your investment portfolio.
Advanced Micro Devices
Businesses need a lot of computing power to use AI for software model training and inferencing. One of the top manufacturers of graphics processing units is AMD (GPUs).
To process large data workloads to train AI models, multiple GPUs must be running at once. Over the next ten years, the stock will be significantly impacted by this chance to sell more chips in the expanding AI market.
In recent years, the demand for AMD chips in data centers for cloud services has already increased.
Without accounting for the purchase of Xilinx last year, AMD’s revenue increased by 20% in 2022. But as the year went on, Wall Street started to worry about weakening demand brought on by macroeconomic headwinds, which caused the stock to decline. AMD reported a decline in data center GPU sales in the fourth quarter.
Due to the uncertain economy, businesses are cutting back on spending, but AMD should experience increased growth in 2024.
It will introduce the subsequent-generation MI300 GPU accelerator later this year to handle large AI applications in cloud data centers. It has already been chosen for use by Lawrence Livermore National Laboratories’ El Capitan supercomputer.
AMD is also utilizing AI to increase consumer demand. The new Ryzen 7040 Series Mobile processors for laptop computers are the first x86 processors with a dedicated AI engine. The 7040’s AI capabilities are intended to, among other things, increase power efficiency and battery life.
Lisa Su, CEO of AMD, said on the earnings call for the fourth quarter, “We think that the growth of computing is greatly influenced by AI. Additionally, it ought to be a growth driver for us given our portfolio.” After acquiring Xilinx, management calculated that the long-term addressable market for cloud, edge computing (such as 5G and automotive), and intelligent devices was worth $135 billion.
There are many reasons to think about purchasing AMD stock, including long-term trends that are fueling demand for more computing power. The stock is currently 52% below its previous high, making this the ideal time to purchase before the next bull market.
Amazon
Over the past few decades, Amazon has generated incredible returns for its shareholders. A massive 393% increase in capital expenditures over the past five years, totaling more than $60 billion last year, has been driven by the company’s expanding revenue and cash flows. Some of these costs will go toward building out e-commerce fulfillment centers, but the majority will go toward sizable investments in technology and data centers.
Amazon uses AI in its Amazon Web Services cloud computing division, among other places. With a market share of over 30%, AWS is the largest provider of cloud services, and in the fourth quarter, it contributed 14% of Amazon’s revenue. Businesses using AWS can benefit from integrating Amazon’s AI services into their applications by improving security and receiving tailored recommendations, among other advantages. The same recommendation engines drive Amazon’s customer services.
AI is used, for instance, to power Amazon’s Alexa voice assistant found in its Echo devices. In fact, Echo can use AI to recognize and understand acoustic sounds like breaking glass. With such advanced capabilities, Amazon may provide retail services in another 30 years that are unimaginable at the moment.
With more than 200 million devoted Prime members, a huge selection of products, and excellent customer service, Amazon already has a lot going for it. Amazon’s retail business is primarily driven by its capacity to monetize data using artificial intelligence to deliver recommendations, precise search results, and content.
Every investor should think about holding this stock for the long term because Amazon is at the forefront of AI-driven commerce.
Alphabet
The parent company of Google must be mentioned when discussing the best AI stocks. Almost everything Alphabet does is impacted by AI. Google Search, YouTube, and other applications like Google Translate use it to power their recommendations and results.
The business has made cumulative investments in R&D of more than $100 billion over the past five years. In the end, according to Alphabet, these investments enable it to “responsibly and boldly develop more capable and useful AI every day.”
Every day, Google Search processes billions of searches, 15% of which are brand-new inquiries that the company has never encountered before. A significant advancement was made in 2018 when Google created the BERT (bidirectional encoder representations from transformers) neural network-based method, which can comprehend the intent behind each query. BERT is one illustration of how the business utilizes the power of AI to enhance customer experiences.
In the end, we can connect Alphabet’s AI strategy to revenue expansion. Without providing users with valuable experiences, Google would become irrelevant and competitors would soon provide superior services. However, Google can make its services smarter because it has deep pockets to invest in cutting-edge AI technology, which keeps billions of users returning to its apps. Because of this, Alphabet is a market leader in digital advertising, which will account for 78% of its revenue in 2022.
Alphabet stock is currently 32% cheaper than it was a year ago for investors to purchase. The forward price-to-earnings ratio of the shares now stands at an appealing 17.8, which is less than the S&P 500 P/E of 21. For this AI leader, that might be a deal.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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