If artificial intelligence (AI) is as important to mankind as some believe, investors won't need much money to generate significant long-term wealth -- as long as they pick the right stocks.
These three Motley Fool contributors set out to highlight three winning artificial intelligence stocks that investors can buy for under $1,000 and confidently hold for the long term -- hopefully forever.
After an exhaustive search, Microsoft (MSFT 1.82%), Qualcomm (QCOM 1.45%), and Meta Platforms (META 0.43%) emerged as leading contenders.
Here is what you need to know.
Microsoft's OpenAI partnership is paying big dividends
Justin Pope (Microsoft): I don't know that Microsoft knew how successful its partnership with ChatGPT creator OpenAI would become when they initially got together in 2019. But no one can argue that it hasn't become a significant advantage over its competitors today. Microsoft has woven OpenAI's technology right into its various software products. Additionally, the partnership funnels all OpenAI compute needs through Microsoft's Azure cloud platform.
OpenAI has expanded beyond its large language model ChatGPT to recently launched video creation engine Sora and humanoid robotics via a joint venture between OpenAI, Nvidia, and Microsoft with start-up robotics company Figure.
It's not like Microsoft needs the upside that tying up with OpenAI provides. We're talking about a $3 trillion company with deeper pockets than almost any business on Earth and a better credit rating than the U.S. government. It's also one that generates roughly $70 billion in free cash flow annually, more than most companies accumulate in revenue.
Perhaps it's only natural that such a technology juggernaut would happen to partner with the company that turned into arguably the leader in AI innovation today. You have plenty of reasons outside OpenAI to buy and hold Microsoft forever. However, the long-term potential upside of AI and all the ways OpenAI brings Microsoft to that dance are undoubtedly good reasons to believe Microsoft's future is bright.
The overlooked AI communications stock that can connect investors to profits
Will Healy (Qualcomm): Qualcomm may have become the forgotten AI chip stock. Most of the focus has fallen to Nvidia, and understandably so, due to its dominant market share.
Nonetheless, devices of all kinds will serve as platforms for generative AI, and Qualcomm-supported phones are no exception. The company has just released its Snapdragon 8 Gen 3, which supports AI models that support as many as 10 billion parameters from one's smartphones. The chip's capabilities also allow it to create pictures enhanced by AI, engage in "console-defying" mobile gaming, or listen to studio-quality audio, all from one's device.
But Qualcomm doesn't rely exclusively on smartphones. The company has extended its capabilities into the Internet of Things and automotive chips and has begun to develop processors for laptops and tablets. Those products should ultimately expand Qualcomm's AI capabilities.
The company is coming out of a slump in the chip industry and an uncertain economy. In the first quarter of fiscal 2024 (ended Dec. 24, 2023), revenue of $9.9 billion rose by 5% year over year. This came after a 19% decline in fiscal 2023. Fortunately, it remains profitable as fiscal Q1 generally accepted accounting principles (GAAP) net income rose 24% yearly to $2.7 billion.
Looking at the stock performance, it's hard to say whether investors are reacting to its AI potential or lackluster finances in recent quarters. The stock is up 35% over the last year. While impressive, it dramatically underperformed other AI chip stocks such as Nvidia and Advanced Micro Devices.
Nonetheless, with a P/E ratio of 24 and a forward P/E ratio of 17, one can argue that Qualcomm is attractively priced, particularly when considering AMD's forward earnings multiple of 50 or Nvidia's price-to-sales ratio of 37.
That valuation could give investors a chance to buy into an AI chip stock at an attractive price. Also, at $165 per share, investors with a $1,000 budget have the opportunity to purchase a few shares before more investors notice Qualcomm's AI capabilities.
Meta combines the best features of a start-up and a cash cow
Jake Lerch (Meta Platforms): Up 41% year to date, Meta Platforms is nevertheless an under-the-radar AI stock. This dichotomy is related to Meta's biggest strength -- it paradoxically combines the traits of a cash cow and a tech start-up.
First, consider Meta's cash-cow advertising business. The company generated nearly $135 billion in revenue last year, nearly all of it coming from advertising across its Facebook, Instagram, and WhatsApp platforms. Thanks to Meta's asset-light business model, 35% of that revenue, or $47 billion, was converted into operating profit. That's a fantastic rate, and it helps explain why the company introduced a regular dividend payment for shareholders.
Yet, Meta is more than just a profitable tech giant. The company is investing billions of dollars in AI research. In fact, Meta is one of the largest buyers of Nvidia's flagship AI chip, the H100. None other than founder Mark Zuckerberg announced that Meta would be running upwards of 350,000 H100s this year to train its AI models.
What does Meta need with all that computing power? Well, it has several ambitious goals, such as perfecting its version of the metaverse and developing Artificial General Intelligence.
That, in a nutshell, gives Meta investors lots to be excited about, such as the potential for explosive growth -- if the company ever achieves its ambitious AI goals -- combined with a river of cash flow thanks to its legacy social media business.
In short, Meta is the type of AI stock investors can buy now and hold for years to come.
