We're quite possibly at the start of what could be a major technological shift with the onset of artificial intelligence (AI). No one knows what new products, services, or companies will be created. However, with estimates of 25-fold growth in the AI market between 2023 and 2023 (according to a UN Trade and Development report), this can't be ignored.
Smart investors will consider ways of betting on this trend. But you don't have to search far and wide. If you're ready to invest $3,000, here are two top AI stocks to buy and hold for the long term.
Image source: Getty Images.
Dominant forces in the internet age
Two of the most successful businesses of all time are Alphabet (GOOG +2.83%) (GOOGL +2.53%) and Meta Platforms (META +1.33%), which rose to dominance as the internet became much more prevalent. Without a doubt, these are two of the best AI stocks investors should look at.
Alphabet and Meta are in very advantageous positions. They already have thriving business models with offerings that reach vast audiences. Alphabet has six products that each serve more than 2 billion people. During the month of June, Meta's family of apps had 3.48 billion daily active users.
I believe a sound strategy is to find businesses that are leveraging AI to improve their existing offerings. In this way, the new technology can be used to upgrade the user experience instead of trying to create something completely new. These companies are doing a great job in this regard.
Alphabet's Gemini model is embedded in its various products and services. And Search, which investors have worried could easily get disrupted by chatbots, counts more than 100 million monthly active users combined on the AI Mode feature in the U.S. and India.
Meta is using AI to provide better content recommendations. This is working so well that it led to a 6% jump in time spent on Instagram in the latest quarter.
These companies generate their revenues primarily from digital advertising efforts. They're both utilizing AI to help their customers create more effective, creative, and successful ad campaigns. Meta founder and CEO Mark Zuckerberg called out the opportunity of improving the ad experience.
"If we deliver on this vision, then over the coming years I think that the increased productivity from AI will make advertising a meaningfully larger share of global GDP than it is today," he said on the first-quarter earnings call in 2025. This could lead to much more revenue down the road.
I think AI will simply widen the already huge economic moats that Alphabet and Meta have developed. It seems extremely unlikely that these businesses will get disrupted anytime soon. As they push forward with their respective AI capabilities, it becomes even more challenging for companies to encroach on their territory.
NASDAQ: GOOGL
Key Data Points
Money is not a concern
Businesses are spending huge amounts of money on AI strategies. Alphabet and Meta are no different. Combined, their capital expenditures are set to total $154 billion in 2025, with increases coming in the years ahead. These numbers are hard to overlook.
While the returns from this AI investment are uncertain, which is the market's biggest worry, these companies are in such strong financial shape that it should be less of a concern. Alphabet ended Q2 with $95 billion in cash, cash equivalents, and marketable securities on its balance sheet. Meta had $47 billion. With incredibly lucrative business models, demonstrated by the tens of billions in profits generated each quarter, they have the resources to move fast and position themselves to be leaders in the AI age.
NASDAQ: META
Key Data Points
Cheapest of the "Magnificent Seven"
What's particularly exciting about these two companies is that investors don't have to chase expensive valuations in order to gain exposure to AI in their portfolios. There's undeniably a lot of buzz in this area of the market. However, Alphabet and Meta trade at the cheapest price-to-earnings ratios of all the "Magnificent Seven" constituents.
With $3,000, investors can buy about six shares of Alphabet and about two shares of Meta. These might be the only AI stocks you'd need to own.
