Artificial intelligence (AI) has taken the world by storm in what seems like the blink of an eye. It's also played a huge role in pushing the stock market to new record highs.
While there has recently been some data that's raised questions about the level of profitability that businesses are getting from AI integration, the technology is still just starting to change the world -- and long-term investors who back the right players could score huge wins.
With that in mind, read on for a look at two stocks identified by Fool.com contributing analysts as standout buys even among other top artificial intelligence investment opportunities.
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The largest cloud provider, the most to gain
Jennifer Saibil (Amazon): Amazon (AMZN +0.34%) disappointed investors with its second-quarter report released two weeks ago, but if you can focus on the future, you can take Amazon stock's dip as a buying opportunity. There are many reasons to imagine it can keep growing over the next few years and become one of the top players in AI.
It's already the biggest cloud services provider in the world, with 30% of the market, according to Statista. One of the updates that alarmed the market after the report was growth in Amazon Web Services (AWS), Amazon's cloud segment. Sales increased 17% in the quarter, only half the growth of its closest competitor, Microsoft's Azure. It may be somewhat of an overreaction, since AWS sales are much higher than Azure's, at nearly $120 billion over the trailing 12 months, while Azure's were $75 billion, and Amazon's dollar share gain was still higher.
NASDAQ: AMZN
Key Data Points
There were other things that bothered the market, such as tariff uncertainty and an outlook that didn't quite match expectations. But these are short-term bumps along the road, and investors should be able to look past them and see the long-term opportunity, especially in AI.
As the largest cloud company, Amazon has incredible potential in building its generative AI business, which is primarily on the cloud. It's investing more money than competitors, which CEO Andy Jassy upped to more than $100 billion this year in the second-quarter release. It offers a slew of services to meet demand at every level, from the small player who needs plug-in solutions to some of the biggest companies in the world, which employ a full staff of developers to create custom large language models (LLM).
Amazon's trademark service is called Bedrock, and it offers a large array of LLMs and tools for developers to create AI apps that fit their needs. These include the gamut of LLMs, from high-cost to free, as well as Amazon's own Nova LLMs. Amazon acquired a stake in AI company Anthropic last year, which has some of the best LLMs available. It's even creating its own hardware, with budget chips for smaller needs, but it also has a robust partnership with chip powerhouse Nvidia.
CEO Andy Jassy keeps reminding investors that 85% to 90% of information technology (IT) spend is still on the premises, but that's going to flip to the cloud over the next 10 to 15 years. As the largest cloud provider, with the most competitive set of options in place, Amazon is well-positioned to benefit from a windfall when that happens.
Up more than 140% over the last year, this stock is still flying under the radar
Keith Noonan (Unity Software): When most people think of hot AI stocks, Unity Software (U 0.44%) is probably a name that doesn't come up much. The company specializes in video game development tools and digital marketing services, and it's generally had a rough go of things since going public nearly five years ago. The company's share price is down 41% from market close on the day of its initial public offering (IPO) and 80% from its all-time high.
Some poorly conceptualized and executed growth bets and monetization strategies caused the company to lose ground in its key markets, but the company has switched up its leadership team and is moving forward with renewed focus on profitability and strategic innovation. The turnaround initiative has helped the company's share price surge more than 140% over the last year, and the comeback rally could still be in its early innings.
NYSE: U
Key Data Points
Sales increased 1.4% on a sequential quarterly basis in Q2, and management is guiding for mid-single-digit sequential growth in the current quarter. Compared to other companies with substantial exposure to AI trends, that may not look like much -- but the relatively modest top-line expansion is obscuring the bigger comeback picture. Along those lines, the company's new AI-driven ad network powered 15% sequential sales growth in Q2 and is likely still in the very early stages of making an impact.
Unity's AI digital marketing platform looks poised to reenergize the business, and that's far from the company's only AI-related opportunity. Software and data that's used to help nonplayable game characters navigate virtual worlds could wind up proving very useful when it comes to training robots to navigate real-life space.
Unity also provides the leading development platform for creating augmented reality (AR) and virtual reality (VR) applications, and its data and software tools could prove very valuable as tech giants look for the next big hardware platform after mobile.
