Artificial intelligence (AI) is already a leading technology that's found its way into everything from cloud-based software services to vehicle safety systems. Because of its plethora of uses, the AI industry is rapidly expanding and will be worth an estimated $1.6 trillion by 2030.
But how can investors best tap into this fast-growing trend?
Considering the current market volatility and instability in some tech sectors, I think finding large, stable companies that are benefiting from AI is the way to go. Here's why Alphabet (GOOG 0.56%) (GOOGL 0.69%), Amazon (AMZN -1.11%), and Nvidia (NVDA -3.87%) top the list of AI stocks to buy right now.
Image source: Getty Images.
Alphabet
Alphabet's Google implements AI into a wide variety of its services, from helping users categorize and find images in Google Photos to using its DeepMind company to try to find cures for diseases.
But the most practical and lucrative usage for Google's AI right now is for the company's advertising business. Google's knowledge of online user behavior -- and its ability to use AI to pull out relevant data from it -- has given the company an upper hand in the ad space.
In 2022, Google held about 29% of the U.S. digital advertising market, compared to Meta's 19.6%. That position is important because global digital advertising is projected to reach $701 billion this year -- up from $615 billion last year.
In the first nine months of 2022, Google's advertising revenue was $165 billion, up 11.5% from the same period in 2021. And while the company could face an advertising slowdown in the near term -- thanks to an uncertain economic climate -- its current lead in the ad space and dominance in online search should continue to give Alphabet an edge.
Alphabet's shares currently trade at a price-to-earnings (P/E) ratio of 17, which isn't exactly cheap, but that's far less expensive than its multiple of 25 this time last year. This makes it a much better time to pick up some shares of Alphabet right now than in the recent past.
Amazon
Amazon has long had its hands in machine learning and artificial intelligence to improve its business and gain a competitive edge in the e-commerce space.
The company uses AI to keep track of what people search for and buy on its massive online marketplace, as well as what items it suggests to potential customers. It also uses AI to help forecast what products will be in demand and when.
But the company has also used AI to carve out a dominant position in the cloud. The company's Amazon Web Services (AWS) holds the largest cloud market share with 34% right now. AWS offers a myriad of AI-based cloud services, including image recognition, data analyzing, and image and video recognition. In the third quarter, AWS revenue rose 27% to $20.5 billion.
And finally, Amazon has also used AI to boost its standing in the advertising space. The company's understanding of what people search for and buy on its e-commerce site has been used to figure out what ads it should give customers on the site.
This has helped Amazon grow its ad segment into a $30 billion business annually, and it will have an estimated 12.7% of the U.S. digital ad market in 2024.
Amazon's stock has tumbled along with other technology stocks over the past year. That's helped push its price-to-sales ratio down to just 1.7 right now, from about 3.7 this time last year, making Amazon's stock a relative deal.
Nvidia
You can't talk about artificial intelligence and smart cloud-based services without also focusing on the fact that there's physical hardware that's making it all possible. And that's where Nvidia's graphics processors come in.
Many of the world's leading AI companies use Nvidia's GPUs to make their AI services a reality. For example, Microsoft recently adopted Nvidia's AI stack (both hardware and software) for some of its needs, adding to Nvidia's dominance in the space.
That new partnership comes shortly after Oracle announced that it's using Nvidia's AI capabilities for its cloud services as well.
In the third quarter, Nvidia's data center sales rose 31% to $3.8 billion. Nvidia will benefit as companies rely more on AI chips, which is expected to become a $195 billion market by 2030, according to Allied Analytics.
Nvidia's shares trade at a P/E ratio of about 62, which isn't cheap, but it's still much less expensive than its 93 multiple this time last year. Investors looking for a stock that's likely to benefit as more companies adopt AI should consider adding Nvidia to their portfolio right now.
Be patient with AI stocks right now
Tech stocks are suffering right now as investors worry about a potential recession and high inflation. That means that AI investors will have to be patient with these stocks as they grow over the coming years.
But investors should also remember that snatching up great companies while they're down and holding on to them for five years or more is a great way to build a long-term investment strategy.
