Technology stocks have helped lead the market higher for much of the past decade, and with artificial intelligence (AI) still in its early innings, there is a good possibility this trend continues over the next decade.
Let's look at three AI stocks to buy and hold for the next 10 years.
Image source: Getty Images.
1. Nvidia: The king of AI infrastructure
Nvidia (NVDA +2.98%) has been at the forefront of the AI boom, and it has the moat in place to continue to be the AI infrastructure leader over the next decade.
This moat starts with its CUDA software platform, where most foundational AI tools and libraries have been written and optimized for its graphics processing units (GPUs). It then moves into networking, where its proprietary NVLink interconnect system shares pooled memory and speeds up communication between its chips, allowing them to act like one powerful unit. At the same time, its central processing units (CPUs), data processing units (DPUs), and other networking components let it deliver turnkey AI supercomputers.
NASDAQ: NVDA
Key Data Points
Both companies and countries are in an AI gold rush, and Nvidia is the primary pick-and-shovel provider. Data center infrastructure spending is expected to remain robust for a very long time, which sets up Nvidia to continue to be a long-term AI winner. Meanwhile, with the stock trading at a forward price-to-earnings (P/E) ratio of approximately 24.5 times analyst estimates and a price/earnings-to-growth (PEG) ratio of less than 0.7 times (with PEGs below 1 generally considered undervalued), it is attractively priced.
2. Alphabet: A vertical integration advantage
With the most complete AI stack of any company, Alphabet (GOOGL +2.01%) (GOOG +1.93%) is primed to be a long-term AI winner. The company has developed its own world-class custom AI chips called Tensor Processing Units (TPUs), which it has used to train its top-tier AI model Gemini. It has then infused Gemini throughout its products, including Google Search, to help drive growth. On top of that, it is now starting to let customers use its TPUs with Google Cloud to help them power their own AI workloads.
NASDAQ: GOOGL
Key Data Points
Alphabet hasn't stopped there, though. The company also owns top-notch AI software, like Vertex AI, and has its own large-scale fiber network. It's also in the process of buying leading data center cybersecurity company Wiz and data center energy company Intersect.
With energy being one of the biggest AI infrastructure bottlenecks, the Intersect deal should help the company be able to more quickly build out new data centers. This vertical integration sets Alphabet apart in the AI space, and trading at a forward P/E of 25 times, it is also reasonably priced.
3. Taiwan Semiconductor Manufacturing: A near monopoly
The AI boom isn't possible without Taiwan Semiconductor Manufacturing (TSM 0.21%), as the company has become a virtual monopoly in the manufacturing of advanced chips, like GPUs and TPUs. It has proven to be the only company capable of manufacturing these chips at scale with minimal defects, making it an integral partner to chip designers.
NYSE: TSM
Key Data Points
The company recently announced that it would ramp up its capital expenditures (capex) to build additional fabs (chip manufacturing facilities), as customers continue to clamor for more capacity. TSMC's position has also given it strong pricing power, and reports say that the company has already told customers it plans to increase prices over the next four years. Increased prices and strong utilization are also leading to robust gross margins for the company.
TSMC is set to be one of the biggest beneficiaries of the AI data center buildout moving forward: It's increasing capacity, raising prices, and advancing its technological expertise briskly. Meanwhile, the stock is also attractively valued, trading at a forward P/E of 24 times and a PEG of 0.7. That makes it a top stock to buy and hold for the next decade.
