If you're investing for the future, artificial intelligence (AI) is important to have investments in. Admittedly, there's a lot of hype right now, but this potential multitrillion-dollar market opportunity isn't worth skipping over.
Unfortunately, some of the hottest AI stocks today, like Nvidia and Microsoft, trade at lofty prices, making it hard for investors to accumulate shares. The good news is that some lower-priced stocks have big-time long-term growth potential.
You can buy these three AI stocks for just $500 and hold them indefinitely.
1. Palantir Technologies
Palantir Technologies (PLTR 3.73%) stock has blossomed, soaring over 205% over the past year. Despite that, it carries a reasonable valuation if you plan on buying and holding.
The software company operates three proprietary platforms, Gotham, Foundry, and AIP, on which customers can build and deploy custom software that analyzes data and integrates artificial intelligence (AI) into a company's operations. You could think of Palantir as a central operating system that ultimately weaves itself into every aspect of a customer's business.
Palantir does a lot of business with the United States government, including military and defense. However, the company's growth in the private sector is what's driving investors' demand for shares.
The company just wrapped up 2023 earnings. Its revenue from U.S. commercial customers grew 70% year over year in Q4 and 12% over the prior quarter. Its AIP platform is in high demand as corporations look for ways to utilize AI in their businesses.
The long-term outlook is very bright for Palantir. The business is now consistently profitable, and analysts believe earnings per share will grow at a blistering 47% annualized rate. The stock is a bit expensive at a forward P/E of 75, but that growth is fast enough to grow into and beyond the stock's current valuation.
2. Advanced Micro Devices
It's become clear that Nvidia is today's dominant vendor of AI chips. However, Advanced Micro Devices (AMD 2.37%) is still worth considering because the pie could grow large enough for everyone to eat.
AMD's CEO, Lisa Su, believes the AI chip market could grow to over $400 billion over the coming years, and analysts believe AMD could capture 10% of that.
Considering AMD's companywide sales are $22.7 billion over the past year, that's a ton of growth potential from today forward. There's a real possibility that companies will look for Nvidia alternatives, either due to price or availability, and AMD is bringing its new MI300X chips to market that can match up to Nvidia's H100 series in performance. Tech giants Meta Platforms and Microsoft are reportedly planning to use the chips.
AMD trades at a forward P/E ratio of 47, and analysts believe the company's earnings will compound at 43% over the long term. That makes AMD a solid buy for the growth investors could see.
No, AMD will probably never surpass Nvidia, but this is a situation where being second best can still generate significant investment returns.
3. UiPath
There's a concern among some that AI will replace a lot of human labor over the coming years. While most science fiction movies focus on physical robots, the realistic scenario might involve software robots instead.
UiPath (PATH 0.26%) is a leading provider of robotic process automation (RPA) software. This software observes computer tasks, learns them, and can perform them in place of humans. This is geared toward repetitive tasks, like filling out forms, extracting data, opening and filing emails, and more.
The company's 121% net revenue rate means customers continually spend more on UiPath's products once they use it. For example, UiPath might start in one department doing one task. As it proves itself, it's used for more tasks, eventually spreading to other company departments. UiPath's product quality is supported by a leadership designation by IT consultant Gartner.
As you can imagine, there are many millions of human workers that UiPath could potentially replace over the years. It's a tremendous growth opportunity.
Additionally, UiPath is flush with $1.8 billion in cash and zero debt. It's profitable and generated $241 million in free cash flow over the past four quarters alone. Analysts believe the company will grow earnings by 42% annually, which sounds like an excellent opportunity for long-term investors at 50 times forward earnings.
