Artificial intelligence (AI) has become the hottest investment theme, thanks to the technology's potential to improve everything from people's daily routines to the way business is done. It can be applied to all areas -- helping automakers boost factory efficiency and pharma companies develop drugs more quickly, to cite just a couple of examples. The great thing about AI is that companies that create the technology or use the technology both can win, and this offers investors many opportunities to share in the victory, too.
You don't have to invest a huge amount of money to bet on these exciting players. Below, I'll talk about three of my AI favorites to buy and hold for the long term -- and you can even pick one up for less than $25 a share. But if you happen to have $1,000 to invest, you can get in on all three and take a position in the industry's most promising players.
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1. Super Micro Computer
Super Micro Computer (SMCI 8.89%), or Supermicro, has soared more than 750% over the past year, thanks to its key role in AI. The company is a one-stop shop for servers, storage systems, full rack scale solutions, and more. In recent times, demand has climbed for products to accelerate AI projects.
In the latest quarter, Supermicro reported record-high demand for AI systems at rack scale that feature chips from leaders such as Nvidia and Advanced Micro Devices. This helped the server powerhouse increase revenue by 103% to more than $3.6 billion.
What sets Supermicro apart is its ability to quickly bring new products to market and its focus on customizing solutions for customers. To speed up time to market, Supermicro follows technology developments at Nvidia, AMD, and others so that it can immediately integrate them in its products.
This means that when such a player releases a new chip, you're likely to find it available right away in Supermicro's systems. Customers also like Supermicro because they can choose various elements, like processors and memory for their servers, according to their specific needs.
Finally, AI clients, knowing that compute-intensive technology produces a lot of heat, are rushing to Supermicro for its innovations in liquid cooling systems. This could help customers lower costs over time.
Supermicro trades for 36x forward earnings estimates right now, which seems reasonable for a company with solid competitive advantages that's serving a high-growth industry.
2. Amazon
Amazon (AMZN 3.43%) is present in just about every area of AI. The company benefits and should continue to benefit from its use of the technology across its e-commerce business. The e-commerce leader uses AI for many key functions, such as improving efficiency across the fulfillment network and helping customers find what they're looking for -- and more -- by serving them suggestions based on their previous purchases.
Amazon also could become an AI winner, thanks to service offerings that help its cloud computing customers apply AI to their businesses.
Amazon Web Services (AWS) is tackling AI from every angle. It has developed chips for clients that want to train their own large language models (LLMs). For clients that don't want to bother with building from the ground up, AWS has another option -- Amazon Bedrock, a fully managed service that allows clients to choose from a variety of top LLMs and customize them. Finally, AWS is present at the application level, too, recently introducing Amazon Q, a generative AI assistant that helps clients perform a variety of tasks.
Today, Amazon trades for 39x forward earnings, down from as much as 56x late last year. This offers investors a great opportunity to get in on this possible AI giant.
3. Palantir Technologies
Palantir Technologies (PLTR 3.73%) is the stock I referred to earlier as priced at less than $25 a share. Though it trades at a much higher multiple than the above players -- about 72x forward earnings estimates -- it's still on my buy list. That's because this valuation measure doesn't account for potential growth further down the road.
Palantir looks like it's just getting started. Analysts predict 85% annual growth over the next five years for this exciting software-as-a-service company.
Palantir helps its customers aggregate and analyze huge amounts of data and draw conclusions that could be extremely valuable for those clients' operations. For years, the company relied on revenue from government contracts, but the launch of its Artificial Intelligence Platform (AIP) last year and "bootcamps" to introduce customers to the service are changing all that.
Today, commercial revenue represents an enormous growth opportunity, as businesses sign on for AIP and use Palantir's AI strengths to leverage their own data. Performance in recent quarters demonstrates the potential.
In the most recent quarter, U.S. commercial revenue jumped 70% year over year to $131 million, and U.S. commercial customer count increased 55%. In the quarter, Palantir closed 103 deals valued at over $1 million, twice the number from a year ago.
Palantir's Chief Executive Officer Alex Karp predicts AIP will be "the future of our company," and the company's momentum suggests he could be right. That's why Palantir makes a top AI stock to buy today and hold for the long term as the company potentially becomes one of the industry's big winners.
