Artificial intelligence (AI) is more than just a trend, it's transforming many businesses. It will drive efficiency and create new growth opportunities in the future. Data from Grand View Research pegs the global AI market to grow at an impressive compounded annual growth rate of nearly 38% through 2030.
Three companies that could benefit from this long-term growth opportunity include C3.ai (AI -0.85%), Nvidia (NVDA 3.71%), and Alphabet (GOOG -1.96%) (GOOGL -1.97%). Here's why these stocks have the potential to be great long-term buys as AI becomes more prevalent in day-to-day businesses.
1. C3.ai
C3.ai is a pure-play AI stock that has been a hot buy this year, trading up over 70% in 2023. Its enterprise solutions offer the potential to help companies in many industries, including manufacturing, oil and gas, utilities, and others. Its applications work to help improve uptime, enhance supply chain efficiencies, and assist with fleet management and customer service. The growth opportunities it's working to capture in AI are undoubtedly what has many investors bullish on C3.ai's stock. Countering that bullishness at the moment, though, are some underwhelming financials.
Investors who buy in on this stock will need to understand that it may take a while for C3.ai's business to achieve significant growth and be profitable. For fiscal 2023 (ended April 30), C3.ai management anticipates annual revenue of $265 million. That's only a 5% increase from what it reported in fiscal 2022. Meanwhile, management projects an adjusted operating loss of around $71 million for the fiscal year.
C3.ai does have many big-name customers, so there is an opportunity to grow and expand its business while also strengthening its profile within various industries. It has partnered with the U.S. Department of Defense, as well as Raytheon Technologies, and it has a strong relationship with oil and gas company Baker Hughes as well.
C3.ai's market cap stands at around $2.2 billion. This stock could be a good buy for the long term if the company can continue adding to its customer base and improving its top and bottom lines. There's some risk here given the company's continued losses and relative instability, but this is definitely an AI stock worth watching and potentially adding to your portfolio, as there could be some significant upside.
2. Nvidia
Although softening demand for PCs hurt Nvidia's sales in recent quarters, that trend isn't likely to persist long term. Meanwhile, the company's A100 graphics chips have been integral in helping develop ChatGPT.
Given the growing excitement surrounding AI, Nvidia is focusing more of its resources on that segment of its business. It's launching cloud-based services that it says can help companies "build, refine and operate custom large language models and generative AI models that are trained with their own proprietary data and created for their unique domain-specific tasks."
Nvidia already has a great track record to build from. With the inevitable recovery in the market for PCs and the opportunities to help companies develop AI capabilities, Nvidia is another stock poised for some great gains in the years ahead.
The one real issue is that investors have already caught on to Nvidia's potential and its stock trades at or near a 52-week high, it's doubled in value year to date, and its price-to-earnings (P/E) multiple is around 170. A lot of the forecasted growth appears to already be priced into the stock. But given the possibilities in AI, it still may not be too late to invest in Nvidia. With free cash flow of at least $3 billion in each of the past four years, the company has ample resources to invest in some exciting growth opportunities.
3. Alphabet
Alphabet is working on developing a ChatGPT rival, Bard. And while it didn't get off to a good start, it's still in the early innings of developing the technology, which could help revolutionize its Google search engine.
At the company's developers conference this week, Google announced multiple AI-related initiatives, including incorporating AI into Gmail and popular office apps such as Sheets, Slides, and Docs. It will also be bringing AI to its search engine. The move will ramp up the competition with Microsoft's Bing browser, which is also getting AI-related upgrades.
Alphabet stock's modest 32% gains this year make it the most modestly priced AI stock on this list. At 23 times earnings, its valuation is pretty cheap given the average tech stock trades at a multiple of 30. That's not bad for the tech company behind not just Google search but YouTube as well.
Alphabet is struggling due to weak demand in the ad market, but it recently reported first-quarter results that beat expectations: Revenue of just under $70 billion rose 3% year over year, and earnings per share of $1.17 came in higher than analyst estimates of $1.07. The company's decision to buy back $70 billion worth of shares could also prove to be a genius move at its modest valuation, and it may help set up the stock for greater returns in the long run.
Alphabet may have got off to a rough start in the AI search engine wars, but investors shouldn't count this stock out, as it may produce some great returns for investors in the years ahead.
