The stock market is poised to enter the second half of the 2020s as the new year arrives.
It's an exciting time for investors and society as a whole. The emergence of artificial intelligence (AI) over the past few years has given rise to several new and emerging industries. Self-driving vehicles, humanoid robotics, and quantum computing are just a few of the ways investors could strike it big over the next four to five years.
Here are three AI stocks investors should consider buying and holding for the rest of this decade. Each stock is unique in what it offers, giving investors some refreshing variety in how to invest in AI's promising future of technological innovation.
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1. This AI stock has a high floor
The unpredictable nature of a new and exciting field like AI makes it wise to invest in stocks with a high floor, meaning low chances of a catastrophic outcome. Alphabet (GOOGL 0.80%) (GOOG 0.87%), the internet giant and parent company of Google, is a notable example. It has developed its own AI models and trained them on first-party data, and it owns a top cloud computing platform. That makes it arguably the most complete AI company.
NASDAQ: GOOGL
Key Data Points
Ironically, Alphabet's fate doesn't necessarily rely on AI. Yes, it's a fantastic growth opportunity, but Alphabet's core digital advertising business, through Google and YouTube, generated $74.1 billion in revenue during the third quarter alone. Alphabet's robust profit margins generate billions of dollars in cash flow, which it uses to fund its AI investments without adding prohibitive amounts of debt to its balance sheet.
In addition to all that, Alphabet continues to pursue growth in new industries. It is steadily expanding Waymo, its autonomous ride-hailing business, and has ongoing efforts in quantum computing technology. Alphabet's strong core business and stellar companywide performance make it a dependable choice for buy-and-hold investors over the next three to five years.
2. High risk, high reward with this robotics play
If you're willing to take a bigger risk for the sake of more upside, Tesla (TSLA 0.10%) could be a stock worth considering. Most know Tesla for its electric vehicles and energy storage systems, but CEO Elon Musk has steered the company hard into AI and robotics. More specifically, Musk has argued that its humanoid robot, Tesla Optimus, will eventually represent most of Tesla's value.
NASDAQ: TSLA
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While Musk has made lofty promises and frequently missed target dates, there's no arguing against Tesla's stock performance, which has vastly outperformed the broader market over the years. That doesn't guarantee future success, but the humanoid robotics market is a massive opportunity. Experts believe it could grow into a $5 trillion total addressable market by 2050.
On the other hand, Tesla's core vehicle business has struggled in recent quarters. That could change for the better, and Tesla's own autonomous ride-hailing service, Robotaxi, launched earlier this year.
Still, it highlights the stock's potentially low floor if Tesla doesn't deliver on Musk's promises. Investing in Tesla is ultimately a bet on Musk's continued leadership and execution, something investors should consider before purchasing shares.
3. A rare AI dividend stock
AI and technology often scream growth stocks. International Business Machines (IBM +0.14%), also known as IBM, may appeal to investors seeking dividend income. IBM is a longtime player in the tech sector, and to its credit, has managed to evolve with the times, remaining a relevant competitor. It has positioned itself as a leader in hybrid cloud computing, with deep corporate relationships.
NYSE: IBM
Key Data Points
IBM is helping its customer base adopt and integrate AI technology, often through consulting services, and is a leading developer of quantum computing systems and development software. The company pays a dividend that currently yields 2.2%, and IBM has raised the dividend for 29 consecutive years, a reflection of its ability to grow over decades.
IBM continues to expand its AI ecosystem through bolt-on mergers and acquisitions, fertile ground to continue monetizing its customer relationships as a full-tech solutions provider. Analysts anticipate IBM's earnings growing at a high-single-digit annualized rate over the next three to five years. That won't make investors rich overnight, but it will continue to fund dividend increases, with some added price upside along the way.
