Some artificial intelligence (AI) stocks have the power to future-proof your portfolio. Whatever market quirks the future might hold, these companies will be ready to adapt in a heartbeat -- and they might lead the charge in the first place.
Our panel of Motley Fool contributors will show you how Alphabet (GOOG 9.96%) (GOOGL 10.22%), Applied Materials (AMAT 2.98%), and Salesforce (CRM 0.42%) can set your portfolio up for long-term success.
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Alphabet is quietly building a massive AI legacy
Anders Bylund (Alphabet): When I think about future-proofing my portfolio, Alphabet (GOOG 9.96%) (GOOGL 10.22%) springs to mind as one of the first and best choices.
The parent company of Google was literally built to keep up with changing markets and to remain a technology giant for decades to come. If and when online search and advertising falls out of favor, for example, Alphabet should be able to find another operation to fill that massive role.
Waymo, the self-driving car service, might be the next billion-dollar business, or the cloud computing service could become Alphabet's leading profit center in the long run. Or maybe its core operation in a decade or two will be health science and pharmaceutical research.
Nobody knows, but Alphabet is exploring all of these avenues and many more. And that's why the intentionally vague Alphabet holding company exists, wrapping the Google brand in layers of flexibility. Many of these potential growth drivers might have been difficult to sell under the "Big G" brand.
On top of that, Alphabet also springs to mind when I'm looking for promising AI stocks.
Critics argue that Google is facing an existential threat from newfangled artificial intelligence tools, but then I remind myself that the company has been working on AI for decades. The only reason why we haven't seen more AI-powered tools and services from this company is that nobody was asking for them.
But the tide has turned, and AI has become a major selling point. So you can bet that Alphabet is putting a spit shine on its experience, marketing package, and deep learning analysis of various AI ideas. It's all behind the scenes so far, and I can't wait to hear more about it.
So in my view, Alphabet is both the best future-proofing idea on today's market and the once and future king of AI. That's exactly what we're looking for in this panel discussion, and I can wholeheartedly recommend future-proofing your portfolio with Alphabet -- a top AI stock.
This software giant is ready to embrace new AI
Nicholas Rossolillo (Salesforce): Salesforce reported solid first-quarter earnings to kick off 2023 -- a year that will be marked by an economic slowdown, fears of recession, and businesses around the globe taking a cautious approach to spending on cloud software. After an incredible spate of hypergrowth during the 2010s, culminating in a boom early in the pandemic, a slow-growth environment is unfamiliar territory for the cloud market.
And yet Salesforce is ready to refocus its efforts on doing more with less. That's where AI comes in (since it is, ultimately, simply a way to boost business efficiency). CEO Marc Benioff talked extensively on the last earnings call about generative AI being infused across the platform.
Two examples are the upcoming Einstein GPT to help users quickly find data on a customer, and the collaboration service Slack GPT getting intelligence embedded into it to help quicken communications and teamwork.
It was a busy week for Salesforce after earnings, too, as it rattled off a series of AI-related press releases. The cloud pioneer announced Marketing GPT and Commerce GPT, enabling conversational prompts for teams looking for real-time information on customers to adjust ad campaigns and customize shopping experiences using Salesforce data.
And in a second unveil, Salesforce said it expanded a partnership with Alphabet's Google Cloud in a data-sharing agreement to bolster the development of custom AI models that joint customers of the two tech giants might be developing for themselves in-house.
The speed with which Salesforce has launched all these new AI services tells me it has been at it for a long time already, and was ready to rock when generative AI took the world by storm starting in late 2022.
Salesforce is anticipating about 10% revenue growth this year, and rapidly expanding profit margins along the way, no doubt helped by using its own tools to boost company productivity. This stock has been a long-term winner, and I see no reason why that will change.
This equipment supplier will profitably grow no matter who wins the AI race
Billy Duberstein (Applied Materials): First there was the PC, then the smartphone, then the cloud, and now artificial intelligence. The point is, there have been numerous big leaps in technology platforms over the years, with shifting winners and losers. But the consistent theme is that each major technology platform depends on semiconductors, which are dependent on a handful of semiconductor equipment companies.
Applied Materials is the largest (by revenue) and most diverse semiconductor capital equipment producer in the world, with etch and deposition, metrology, ion implant, and a host of other technologies in its portfolio. And it serves an array of different end markets, including leading-edge logic, DRAM and NAND memory, and specialty trailing-edge chips. The company even has a small display business as well.
That diversity is paying off today; while the PC, smartphone, and cloud servers are all in a slump, leading to declines in machine sales for leading-edge and memory production, trailing-edge technologies such as ion implant machines are booming.
In addition, Applied has a nice services and spares business that's less volatile than machine sales, since it's tied to the the company's installed base. So despite being in a severe downcycle in traditional parts of the industry, Applied still grew revenue by 6% last quarter, with operating profit margins near 29%.
Those hefty margins allow for ample cash returns to shareholders in the form of dividends and buybacks, with management anticipating doubling its 1% dividend over the next few years.
And those profits also allow for reinvestment. Recently, Applied Materials announced it will make a $4 billion investment in a new kind of research and development (R&D) facility, set to open in 2026. This new facility will be a first-of-its kind, with shared collaboration space for Applied's foundry and memory customers to try out new technologies. Universities will also be able to use the space to experiment with cutting-edge technologies in a production setting.
The result will be faster time-to-market for new chip technologies as the chipmaking process becomes more complex. And as a nice side effect, Applied will cement its relationships with customers, as well as prospective university talent, even more strongly. The result will be a deepening moat, which should support growth and profits for years to come.
