Some innovations, like e-commerce and the cloud, are so big they can take many years to play out. The companies that create the best investment returns can tap into that growth and ride it for decades.
It's still early, but it looks like artificial intelligence (AI) is the next great tech frontier. Three Fools combed through the technology sector to identify Amazon (AMZN +0.30%), Palantir Technologies (PLTR +0.43%), and Snowflake (SNOW 0.64%) as crucial roleplayers that will support AI's broader growth moving forward.
The best news? You don't need much money to make big returns over the long term. Investing $2,000 in any (or all) of these could pay off well over the next 25 years.
Here is what you need to know.
Amazon will be the foundation for many of AI's innovations
Justin Pope (Amazon): Training AI models requires tremendous computing power to crunch through vast data quickly. That's where Amazon is poised to impact AI's growth over the coming years. Amazon Web Services (AWS) is the world's largest cloud platform, and Amazon is aggressively adding tools and services to help developers build AI on it.
AWS is bringing in-house-designed chips to its platform this year, including the Graviton4 processing chip for general computing loads and the Trainium2 designed for AI applications. Additionally, AWS will deploy Nvidia's next-generation H200 AI chip and over 16,000 GH200 Grace Hopper Superchips intended for the most extensive AI applications.
NASDAQ: AMZN
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Don't get me wrong. The cloud is a competitive field with other deep-pocketed players, including Microsoft with Azure and Alphabet with Google Cloud, nipping at Amazon's heels.
According to research by Fortune Business Insights, the global cloud computing market could grow 20% annually to $2.4 trillion by 2030. So, the size of the opportunity should be enough for everyone, and AWS has maintained a market share lead for years.
Until Amazon is knocked off its lead, the stock is a must-own for long-term growth investors.
Palantir delivers another bumper quarter as organizations race to adopt its technology
Jake Lerch (Palantir Technologies): My pick is Palantir Technologies. When I think of AI stocks I want to own for 25 years, I want a company with a lot of room to grow. And Palantir certainly fits the bill.
NASDAQ: PLTR
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Incorporated in 2003, the company debuted on the New York Stock Exchange via an initial public offering (IPO) in 2020. Since then, shares have more than doubled. Yet, at around $22/share as of this writing, they're still appealing to those investors who prefer low-priced stocks.
At any rate, Palantir's real value is in its product: an AI-driven big data analysis platform that helps organizations sift through enormous data sets. And judging by its latest earnings results, customers are racing to sign up.
As of its most recent quarter (the three months ending Dec. 31, 2023), Palantir's customer count grew 35% from a year ago. Furthermore, quarterly revenue increased to $608 million, an increase of 20% year over year, and net income rose to $209 million.
The positive earnings are of particular interest, as CEO Alex Karp pointed out in his annual letter to shareholders:
"In Q4 2023, we generated a profit of $93 million, cemeting our fifth consecutive profitable quarter and making 2023 our first profitable year since our founding. Consequently, we continue to be eligible for inclusion in the S&P 500."
In short, it's quite likely that Palantir will be added to the S&P 500 sometime soon. With a market cap of $45 billion, the company is already roughly the same size as iconic American companies like General Motors and Kraft Heinz.
And that could provide an additional boost to a company already racing to new heights.
This data cloud company leaves its mega-tech competitors out in the cold
Will Healy (Snowflake): At first glance, it may look like the worst time to buy Snowflake. At a price-to-sales (P/S) ratio of 27, even some growth investors may perceive it as priced for perfection.
However, despite Snowflake's expensive sales multiple, its valuation is not far above its record low. So compelling is this value proposition that Warren Buffett's Berkshire Hathaway, a typically risk-averse investment group, was a pre-IPO investor and continues to hold a position.
Snowflake's data cloud manages, stores, and secures data in the cloud. It has a competitive advantage as it can work with data sets regardless of a company's cloud provider. That edge has Amazon promoting Snowflake, even though it offers its own data cloud product.
Moreover, it released Snowflake Cortex last year to build AI applications quickly and easily within the platform. Cortex also utilizes machine learning for forecasting and detecting anomalies, functions that help its customers increase efficiency.
Additionally, customers pay for Snowflake by the amount of usage. Thus, the more clients utilize the product, the more revenue the company earns.
Consequently, long-term clients increased spending on the platform by 35% over the last year. Also, the $2 billion in reported revenue in the first nine months of fiscal 2024 (ended Oct. 31, 2023) increased 38% versus the same period in fiscal 2023.
Furthermore, Snowflake holds the potential to maintain or possibly increase that growth rate for some time to come. Its customer base exceeded 8,900 customers as of the end of fiscal Q3, a yearly increase of 24%. Moreover, the cohort of customers spending over $1 million per year rose 52% to 436, a testament to the platform's rising popularity.
NYSE: SNOW
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Considering the customer growth and rising spending on the platform, today's valuation should hold minimal importance as Snowflake consolidates its leadership within the data cloud. For investors who intend to hold the stock for 25 years, such positioning could lead to massive returns on one's $2,000 investment.
