Excitement around artificial intelligence (AI) and its potential impact on businesses has led to soaring stock prices for many of the biggest tech companies. Nvidia, for example, has seen its stock price grow more than tenfold since the release of ChatGPT in late 2022, now topping $4 trillion in market cap.
Some investors may feel like they've missed the boat and they're too late to buy AI stocks at a good price. It's important to consider that today's AI winners might not be the biggest companies to benefit from advancements in artificial intelligence over the long run. Finding a company that's making excellent progress right now with sustainable long-term competitive advantages could end up being an even better stock to own when the dust settles.
These three companies are all well positioned to benefit from the continued growth and advancement in artificial intelligence. Their stocks are all attractive at today's prices, too, which means you can buy them now and hold them forever.
Image source: Getty Images.
1. Amazon
Amazon (AMZN +1.87%) is home to the largest public cloud computing platform in the world, Amazon Web Services, or AWS. The segment generated $116.4 billion over the last 12 months, roughly 50% larger than its next-closest competitor, Microsoft's Azure.
Some have expressed concern about AWS for a few reasons. First, it was caught flat-footed as the generative AI opportunity was getting off the ground. That led it to cede market share to Microsoft and others who were earlier to invest in the space. However, it quickly course corrected, releasing its Bedrock platform, and it's seeing triple-digit growth in AI services. As such, it's been able to maintain most of its market share in a rapidly growing market (even though overall revenue growth has slowed to the high-teens).
NASDAQ: AMZN
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The second reason is that AWS saw a significant decline in operating margin in the second quarter. Management explained half of that decline was due to the timing of stock-based compensation. The rest is explained by Amazon's significant investments in capacity, as it notes the business remains capacity constrained. Over time, investors should see margin tick back up. It's worth noting AWS still commands higher margins than its smaller competitors.
Meanwhile, the rest of Amazon looks strong. Its retail operations are seeing improved margins quarter after quarter, thanks in part to a strong advertising business. The international segment is notably on its way to becoming a meaningful contributor to operating income after years of investment.
The stock fell following the release of its second-quarter earnings based on a disappointing outlook. But the long-term potential for Amazon, particularly in AWS, remains strong. The pullback in price looks like an opportunity for long-term investors to buy this AI leader.
2. Salesforce
Salesforce (CRM 1.90%) provides a suite of software often found at the center of many enterprises' operations. The company has seen very good results with its growing set of cloud-based software solutions, but the standout recently has been its Data Cloud offering. Data Cloud provides a single platform to aggregate all of a company's data to create actionable insights from a single source.
Data Cloud recurring revenue grew to $1 billion in Salesforce's most recent quarter, up 120% year over year. It's seeing strong attachment, with 60 of its top 100 deals including Data Cloud in the contract. And the most recent product built on top of Data Cloud, Agentforce, is seeing very strong adoption.
NYSE: CRM
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Agentforce allows businesses to build AI agents that can execute tasks or provide customer service with minimal human intervention. The key to building successful AI agents is access to pertinent data, which is exactly what Data Cloud brings to the table. Management says it's made 8,000 deals with Agentforce since its launch last fall, representing $100 million in revenue. That makes it Salesforce's fastest-growing product ever.
Considering Salesforce's software suite is entrenched in the operations of so many enterprises, it's in a prime position to benefit from growing spend on artificial intelligence, particularly through Data Cloud. It's unlikely to lose that position. In fact, its expanding suite of software tools only serves to increase the switching costs for a company. With shares trading for just 22 times forward earnings estimates, Salesforce looks like a great buy at today's price.
3. Meta Platforms
Meta Platforms (META +0.29%) may be the biggest investor in artificial intelligence in the world. It's on track to spend between $66 billion and $72 billion on capital expenditures, and it's only building compute power for itself (unlike the other hyperscalers, who serve cloud customers). There's a good reason Meta is spending more than everyone else on artificial intelligence; it could be the biggest beneficiary of all generative AI has to offer.
Signs of that are already coming through. In the second quarter, Meta's ad prices climbed 9% year over year and impressions grew 11%. CEO Mark Zuckerberg notes a significant portion of that improvement came from its AI-recommendation model. Additionally, time spent on Facebook and Instagram increased 5% and 6%, respectively, thanks to bigger AI models.
But the future is bright, too. Meta's generative AI tools for ad creative are seeing strong adoption. Zuckerberg notes "a meaningful... [percentage] of our ad revenue now... [comes] from campaigns using one of our Generative AI features." Long term, Meta is working on an AI agent that can develop and test ad creatives autonomously.
NASDAQ: META
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Meta's AI chatbot now boasts over 1 billion users, creating an additional channel for monetization over the long run. Meta only recently started putting ads in WhatsApp and Threads, which should provide additional ad revenue as advertising on Meta grows increasingly easier thanks to generative AI capabilities.
Meta's seeing excellent financial results from the growing adoption of its advertising platform and increased engagement from its users. Revenue climbed 22% last quarter and operating income grew an impressive 38%. Meta's growing depreciation expense will likely weigh on earnings going forward as long as it continues to ramp up spending, but if it continues to produce top-line growth like last quarter, that's easily digestible.
If you back out the depreciation expense using EBITDA, Meta shares trade for an attractive price with enterprise value around 16 times forward EBITDA estimates. Even on a more traditional forward P/E valuation, Meta shares look to be well worth the 27 times multiple you'll have to pay for the stock today.
