While the artificial intelligence (AI) revolution has been decades in the making, 2023 could very well be remembered as the year that this incredible technology shift began shaping the stock market. Some top companies in the field have already seen explosive gains thanks to the rapidly accelerating tech trend, but it's worth noting that this incredible tech movement is still very much in its infancy.
If you're looking for top ways to capitalize on the dawning of the AI revolution, read on to see why two Motley Fool contributors think that these tech companies have what it takes to be long-term winners.
This early AI leader could see explosive growth
Keith Noonan: Palantir Technologies (PLTR 3.73%) stock has been on a tear in 2023, climbing roughly 152% across the year's trading. In addition to improving profitability and a return to stronger sales growth, the explosive gains have been powered by excitement surrounding the company's opportunities in AI.
On the other hand, the data software specialist's share price is still down 58.5% from its peak. There are good reasons to think that Palantir will be able to reclaim its previous valuation high and continue expanding from there.
In May, Palantir launched Artificial Intelligence Platform (AIP) -- a service that allows businesses and government agencies to make better use of data through the power of large language models. With its second-quarter report in August, the company announced that it had already signed over 100 customers to AIP. Even better, it was in discussions with over 300 additional potential customers that had expressed interest in the service.
That wasn't the last of Palantir's major, publicly disclosed AI wins. Last month, the Department of Defense announced that the company had won a $250 million contract with the U.S. Army for artificial intelligence research and services. While there's undoubtedly speculation involved in charting the trajectory of the AI market, it seems clear that Palantir has emerged as a leading player in the space.
With a market capitalization of roughly $35 billion, Palantir is valued at roughly 71 times this year's expected earnings and 15.7 times expected sales. That's admittedly a highly growth-dependent valuation, but the business appears to be on the precipice of massive performance catalysts. For risk-tolerant investors, the stock could be a great way to play the AI revolution.
AI could make Alphabet even more dominant
Parkev Tatevosian: If artificial intelligence continues to become an ever-increasing part of our everyday lives, then Alphabet (GOOG 9.96%) (GOOGL 10.22%) is one stock I recommend buying. The Google and YouTube parent has delivered phenomenal business performance over previous decades. Adding AI effectiveness to the mix could bring investors another two decades of excellent returns.
Despite the work YouTube undergoes to highlight videos it thinks you will want to watch, the algorithm has plenty of room for improvement. Of the 100 or so video recommendations I see daily, on average, I estimate less than 10 fit my tastes. Employing artificial intelligence to select videos people are likelier to watch will keep users engaged longer, increasing the advertising revenue for YouTube. Google search could similarly benefit by delivering more accurate responses to search queries.
GOOGL PE Ratio (Forward 1y) data by YCharts
I mentioned that Alphabet has delivered excellent results over previous decades, and the last 10 years have been no exception. Between 2013 and 2022, Alphabet's revenue has increased from $56 billion to $283 billion.
More importantly, its operating income has exploded from $15 billion to $75 billion. Alphabet's stock price is not prohibitively expensive at a forward price-to-earnings ratio of approximately 20. I would say Alphabet is an excellent stock to buy to position yourself to benefit from the increasing effectiveness of AI.
