Artificial intelligence (AI) investing is still one of the best growth stories in the market. The amount of money flowing into this space is incredible, and with the results that many companies have announced recently, it's clear that this success will be ongoing for some time.
Several companies could be bought right now with the mindset of holding for three to five years to outperform the market. Here are three of my favorites.
Image source: Getty Images.
1. Alphabet
Alphabet (GOOG +3.44%) (GOOGL +3.71%) is the parent company of Google, Waymo, YouTube, and the Android operating system. It may look like it has a fairly wide product lineup, but most of its revenue is derived from advertising. Within the advertising segment, Google Search accounts for the majority of revenue.
However, the market is worried that Google Search could be replaced by generative AI models, which would eliminate a huge chunk of Alphabet's revenue stream. This is a huge threat to Alphabet and its shareholders, and it's one of the reasons why Alphabet has a dirt-cheap valuation, trading for just 19 times forward earnings compared to the S&P 500's 24 times forward earnings.
NASDAQ: GOOGL
Key Data Points
Although this is a real threat, there isn't a ton of evidence that this is playing out on a wide scale. Google's search engine market share is still 89.6%, and is also growing revenue rapidly. In Q2, its revenue rose 12% year over year.
This doesn't look like a dying business, and the market may have this one wrong. As a result, I think the risk-reward profile for Alphabet's stock is fantastic at this point, making it an excellent buy now.
2. Amazon
Amazon (AMZN +3.50%) may not seem like an AI company at first glance, as its online commerce store isn't AI-centric. However, Amazon's largest profit driver, Amazon Web Services (AWS), is a key beneficiary of the AI arms race.
AWS is a cloud computing service that allows customers to rent computing power from Amazon. Renting computing power for training AI models has been a popular strategy, as it allows companies to pay as they go, rather than making a huge purchase for an AI supercomputer.
While AWS isn't growing as quickly as some of its competitors, it still posted a strong growth rate of 17% in Q2. Furthermore, AWS generated over $10 billion in operating profits, which accounted for 53% of Amazon's total during Q2.
NASDAQ: AMZN
Key Data Points
Amazon is more of a cloud computing company than a commerce company right now, which bodes well for the future. With the stock falling after reporting Q2 results, I think it's an excellent buying opportunity right now.
3. Taiwan Semiconductor
Taiwan Semiconductor (TSM +5.74%) is the world's leading chip foundry and is cashing in on the massive AI arms race spending spree. TSMC's chips go into many products, but the biggest growth driver right now is Nvidia's GPUs and other high-powered AI computing devices. Thanks to the massive demand for these products, TSMC's revenue is rapidly growing.
In Q2, revenue was up 44% in U.S. dollars, showcasing its strength. This strong growth is all a part of management's long-term vision of rapidly growing AI revenue over the next few years.
NYSE: TSM
Key Data Points
At the start of 2025, management stated that they expect AI-related revenue to grow at a 45% compound annual growth rate (CAGR) over the next five years, with overall revenue increasing at nearly a 20% pace. Taiwan Semiconductor is delivering on that promise, and its strong growth should persist for some time.
With the stock trading for about the same price tag as the S&P 500 (24 times forward earnings), I think it's a smart stock to buy now and hold over the long term.
