While the market is still trading near all-time highs, it's increasingly becoming a stock picker's market, an investment environment where individual stock returns vary significantly. Active investors can potentially outperform the market by selecting specific, high-performing securities and holding them.
Let's look at three monster artificial intelligence (AI) stocks to buy and hold for the next three years.
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Broadcom
Broadcom (AVGO 1.11%) has some of the best growth opportunities of any company over the next three years. With the data center building boom, demand for networking equipment is red hot. And its opportunity with ASICs (application-specific integrated circuits) is even bigger.
NASDAQ: AVGO
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The company should be a big winner from Alphabet's (GOOGL 1.70%) (GOOG 1.60%) huge AI infrastructure spending surge, because Broadcom helps the leader in artificial intelligence make the tensor processing units (TPUs) that power its AI workloads. Meanwhile, Alphabet is beginning to let customers use TPUs for their own workloads through Google Cloud, and Anthropic has already placed a $21 billion order.
Other hyperscalers are also turning to Broadcom to help them design their own custom chips, opening up an enormous growth opportunity over the next few years.
Alphabet
Alphabet is becoming one of the biggest beneficiaries of AI. Its core Google Search revenue has accelerated with the introduction of new AI features, and its Gemini AI model has been recognized as among the best. Meanwhile, its cloud computing unit has been on fire, with revenue surging 48% last quarter.
The company plans to spend big on AI infrastructure this year to capture the opportunity it is seeing. This is a good move, since its TPUs give it a big structural cost advantage over competitors, at less than half the price of Nvidia's graphics processing units (GPUs).
NASDAQ: GOOGL
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The company's decision to start letting customers deploy these chips within Google Cloud opens up another big revenue driver, with Morgan Stanley estimating that Alphabet has generated $13 billion in revenue for every 500,000 TPUs deployed. As the company with the most complete AI stack -- from its own custom chips to a leading AI model -- Alphabet is a stock to own for the next few years and beyond.
Micron Technology
One of the biggest bottlenecks in building AI infrastructure right now is memory. AI chips need to be packaged with high bandwidth memory (HBM) to optimize their performance, but the process to make HBM is complex and requires upward of three times the wafer capacity of ordinary DRAM (dynamic random-access memory). This has left the entire DRAM market in short supply and is leading to surging prices.
As one of the three big DRAM makers -- along with South Korean companies SK Hynix and Samsung -- Micron Technology (MU 3.01%) is one of the best ways to play this dynamic. The current environment is leading to surging sales and huge gross margin increases.
NASDAQ: MU
Key Data Points
And with demand increasing rapidly, the current supply/demand situation for DRAM is likely to remain very tight over the next few years, despite Micron and others increasing capacity. That's an ideal situation for the company.
