There's little doubt that artificial intelligence (AI) is here to stay. The burning question is: Where should investors look for stocks that will benefit from AI's growth over the next decade and beyond? Nvidia (NVDA 1.45%) has been the popular answer over the past couple of years since cloud companies, known as AI hyperscalers, continue to pour billions of dollars into AI data centers and the chips that power them.
Yet, the recent controversy surrounding DeepSeek's cheaper-to-produce AI models has raised questions about the longevity of Nvidia's explosive growth. Eventually, hyperscalers may not need to spend all this money on chips. That's why the top three cloud companies, Alphabet's (GOOGL -1.33%) (GOOG -1.39%) Google Cloud, Microsoft (MSFT 0.04%) Azure, and Amazon (AMZN 0.36%) Web Services, could be the actual AI winners.
Here is why investing $3,000 in available cash not needed for monthly bills, short-term debt, or to bolster an emergency fund, into them could do wonders for your portfolio over the long term.
The cloud makes AI go
You can break AI down into a few pieces:
- The AI chips and hardware in the data centers.
- The hyperscalers/cloud companies that own the data centers.
- The companies that develop AI models and software.
Currently, the hyperscalers could have the widest competitive moats. Nvidia dominated the market for chips to train AI models, but that might not last. Alphabet, Amazon, and Microsoft have all started integrating custom chips into their operations, which could slowly chip away at Nvidia's business. Meanwhile, AI models have become increasingly competitive. DeepSeek's sudden arrival and alleged efficiency raise the possibility that generic large language models may eventually become commodities.
However, few companies can match the massive investments the hyperscalers have made in building the computing capacity to operate AI applications businesses and consumers will use. Alphabet, Amazon, and Microsoft have captured over 60% of the world's cloud market, which could grow by 22% annually to over $2 trillion by 2030.
These three will have the size advantage to offer the computing power AI needs at lower prices than the rest.
All three hyperscalers could enjoy unique AI opportunities
Another advantage of dominating cloud computing is that it creates cross-selling opportunities. All three companies can use it as a distribution channel to sell their AI products and services to cloud customers. For example, all three companies offer cloud-based tools to build AI agents that perform tasks and interact with customers. They could hypothetically begin displacing humans in call centers.
Additionally, all three hyperscalers have existing businesses that can benefit from AI features. For example, Microsoft has a long history in enterprise software. It has embedded AI throughout software products, like Windows and Microsoft 365 (productivity programs like Excel). Alphabet has used AI to enhance its digital advertising business, woven AI features throughout its Google ecosystem, and has long-term potential in self-driving vehicles (Waymo) and quantum computing. Lastly, Amazon uses AI in its e-commerce business and has built a large user base for its Alexa smart home products.
It's only natural that these diverse companies will look to use AI anywhere they can throughout their existing segments while simultaneously pursuing new AI opportunities. Sure, new companies will arise from AI innovation, but it's hard not to like the inside track Alphabet, Microsoft, and Amazon have to create value over the coming years.
Prolonged growth at a reasonable price
Now, it's time to put some numbers to all this.
Currently, all three stocks trade at reasonable valuations for their expected long-term growth:
Data by YCharts.
I generally consider high-quality stocks reasonable buys at PEG ratios of 2.5 or less. Today, Alphabet (PEG ratio of 1.4), Microsoft (2.5), and Amazon (1.9) all fall within that threshold. If the market continues to fret over their elevated AI investments, it's likely a buying opportunity. These companies have emphasized that the demand for AI computing exceeds the current supply. That's a good problem to have!
At the surface, these three hyperscalers could enjoy years of strong growth as AI increases demand for cloud computing. But looking deeper, it's evident that Alphabet, Microsoft, and Amazon are all worthy AI investments for the additional opportunities their existing businesses will give them to gain the upper hand in bringing AI technology to everyday life for consumers and businesses.
It's a no-brainer $3,000 investment that should perform well over the next decade and beyond.
