If things continue at their current pace, 2023 will go down in history as the year artificial intelligence (AI) broke out. The viral debut of ChatGPT late last year was the catalyst for the ongoing AI revolution, and its shows no signs of slowing.
Why all the excitement? Simply put, by identifying patterns within existing data, generative AI can create original content based on what it learns. These advanced algorithms can perform a wide range of tasks that includes drafting and editing emails, writing and correcting computer code, and conducting internet searches and answering questions, among many others.
The result is a long and growing list of productivity gains and potential business applications. Conservative estimates from Morgan Stanley and Goldman Sachs suggest AI could boost the economy by $6 trillion and $7 trillion, respectively, by 2030.
If you have just $1,000 to invest, you can buy two shares each of AI front-runners Alphabet (GOOGL 5.59%) (GOOG 5.33%), Microsoft (MSFT -0.60%), and Palantir Technologies (PLTR -2.17%) and still have a few bucks to spare at current prices.
Image source: Getty Images.
1. Alphabet: A long history of AI functionality
The newness of AI might give some investors pause, but the truth is that the technology has been around for decades, and Alphabet has been employing AI-fueled algorithms for years.
The technology has long driven Google's industry-leading search engine, helping the company control a massive 93% of the market. This search dominance forms the foundation for Google's success in digital advertising, using AI to improve the relevance of ads that appear to each user.
Alphabet has leveraged this ad tech expertise to dominate digital advertising, with nearly 30% of worldwide internet ad revenue, according to estimates compiled by online industry publication Digiday.
Let's not forget the company's Google Cloud, which makes AI available to the masses. It offers a large and growing list of customizable solutions powered by AI to translate languages, run call centers, and analyze images and video, among many other examples.
Better still, investors looking to benefit from AI get three strong and profitable businesses while they wait for the AI revolution to play out.
2. Microsoft: Billions of intelligent experiences each day
Microsoft has long been a proponent of AI, integrating the technology into every corner of its operations. As early as 2017, the company added "artificial intelligence" to its strategic-vision statement for the first time and called 2018 "the year of AI." It has described its approach to the technology as providing "billions of intelligent experiences every day."
Microsoft is a leader in providing cloud-based software-as-a-service (SaaS) for enterprises, and AI is deeply enmeshed in each of the company's flagship products, including Windows, Microsoft 365, Office, Teams, LinkedIn, and even Xbox. Azure Cloud makes cutting-edge AI available to its cloud customers.
In mid-July, the company launched Microsoft 365 Copilot, which is deeply integrated across its full range of products. Microsoft says it's "grounded in your business data" and provides numerous examples of how the technology will boost productivity. It will charge $30 per month per user, and management said demand is currently off the charts.
While Microsoft is planning to capitalize on its AI acumen, its other businesses provide a solid foundation for growth.
3. Palantir: AI built from the ground up
In the wake of 9/11, Palantir was conceived with the concept of using AI to track down terrorists via their financial transactions. By gathering information from siloed data within various public and private government databases, the AI algorithms could detect patterns, leading government agencies to their quarry.
Palantir was wildly successful in its early endeavors, working for a long list of federal intelligence and law enforcement agencies and earning an early investment from the venture capital arm of the CIA. The company quickly realized that its AI expertise could also be used to integrate and analyze siloed data for businesses.
Since then, Palantir has expanded its AI systems for enterprise, including tools designed for supply chain and logistics operations.
Most recently, the company launched the Artificial Intelligence Platform (AIP), which layers generative AI over Palantir's existing systems, helping provide enterprises with a more comprehensive set of solutions. CEO Alex Karp said demand for AIP is "unprecedented."
Perhaps as important to investors, Palantir recently swung to a profit, and management expects to remain profitable.
The fine print
After struggling for most of last year, technology stocks have rallied hard so far this year, with Microsoft, Alphabet, and Palantir up 40%, 49%, and 212%, respectively. This has resulted in a commensurate increase in their valuations, and they're selling for 5 times, 9 times, and 16 times next year's sales, respectively.
That said, each company has inexorable ties to AI and is well positioned to profit from the AI revolution. That's not to say that any one of them couldn't experience a sharp decline in the coming months -- they certainly could.
But given the secular tailwinds resulting from AI, buying these stocks and holding them for the long haul would be $1,000 well spent.
