Artificial intelligence (AI) stocks are hot. Maybe a little bit too hot. With lofty valuations and uncertain market potential, many AI stocks may not be good choices for "buy-and-hold" investing. Others, though, look like better long-term bets.
While there's some inherent level of risk in any new technology, if I were investing $3,000 in AI stocks, I'd pick a mix of established players and higher-risk ventures. Here are my three top AI stocks for long-term investment.
The heavy hitter
With a market capitalization of more than $3 trillion, Microsoft (MSFT 4.42%) stock is certainly more expensive today than it was two years ago. That's at least partly due to excitement about its AI offerings.
NASDAQ: MSFT
Key Data Points
Microsoft's premier AI investment is its financial stake in ChatGPT's developer OpenAI -- which has grown to a whopping $13 billion over several years, almost half the AI start-up's current estimated value! However, Microsoft has also made a number of AI-focused improvements to its own products. These include dozens of AI-driven apps and tools for its Azure cloud platform, and the AI Copilot tool for its Office suite. Plus, with so many revenue streams besides AI -- including software, cloud services, and gaming -- Microsoft isn't dependent on its AI investments for financial success.
In spite of the market's AI enthusiasm, Microsoft's current valuation of 34 times earnings is well within its historical range, and its shares have actually lagged the performance of the S&P 500 in 2024. This looks like a good time to pick up shares.
The comeback kid
Although you might think of it more as a cybersecurity company than an AI play, CrowdStrike (CRWD 2.17%) has made big investments in AI that are poised to pay off for the company.
NASDAQ: CRWD
Key Data Points
CrowdStrike was founded on the idea of "crowdsourcing" cybersecurity. By looking at threats that were circulating in real time and rapidly deploying responses across its entire network via the cloud, CrowdStrike's model was perfectly suited to adding AI elements to improve threat detection and solution deployment. It has begun to roll out such tools for its primary Falcon system, including Threat Graph, which uses AI and machine learning to analyze data in real time, and AI-powered conversational assistant Charlotte AI, which helps analysts locate vulnerabilities in their system and take action to remove them.
CrowdStrike made headlines in July when a faulty update caused widespread outages across the global internet. The stock lost more than 40% of its value and still hasn't fully recovered. However, the company seems to have successfully navigated the fallout with minimal long-term impact, resulting in a buying opportunity for this AI leader in a fast-growing industry.
The pure play
Interest in AI-powered data analytics company Palantir Technologies (PLTR +1.34%) has exploded, with the stock price up over 245% so far this year. Now trading at about 54 times sales, the stock looks very expensive. While I think investors would be smart to wait for a better price point to buy, I like the company's long-term prospects, which are directly tied to its AI offerings.
NASDAQ: PLTR
Key Data Points
Palantir's flagship platform, Gotham, is used by U.S. government intelligence and defense agencies to detect and monitor potential threats. By using AI to analyze data across multiple agencies -- even those with incompatible systems -- Gotham can spot potential dangers that a single agency might never be able to detect on its own. The company has also been increasing the number of customers for its corporate-focused Foundry data analysis platform, and rolling out new AI products like Apollo for software deployment.
As a pure AI play, Palantir is a riskier investment than Microsoft or CrowdStrike. Plus, its current lofty valuation puts its stock at risk of a short-term pullback if it reports any slowdown in growth, or if there's any high-profile misstep. Still, management has done an excellent job of leveraging the company's AI assets into new products and new revenue streams, so I expect it to succeed over the long term.
Choose what's best for you
If you wanted to invest $3,000 in Microsoft, CrowdStrike, and Palantir, you'd have many options. A risk-averse investor would probably want to purchase more Microsoft, while someone who doesn't mind volatility might lean more heavily into Palantir. You could create a fairly balanced basket of all three without using fractional shares by buying three shares each of Microsoft and CrowdStrike at their current prices and putting the remainder into the more volatile Palantir (roughly 10-11 shares).
However you slice it, these AI companies look like good bets for long-term holding.
