Two Multi-billion-Dollar Artificial Intelligence (AI) Shares Worth Investing and Holding Indefinitely
Several multi-billion-dollar corporations are deeply involved in the exploding, highly promising artificial intelligence (AI) sector. This includes Google's parent company, Alphabet (-1.73% for GOOG, -1.70% for GOOGL) and Meta Platforms (-1.24%).
These two corporations had already established themselves as powerhouse entities earlier in their histories, long before AI became as prominent and widespread as it is today. The AI industry will provide these tech titans with a robust lasting boost, but there are other compelling reasons to keep their shares in your portfolio for the long haul. Here's a rundown of why these market leaders are worth holding onto.
1. Alphabet
Initially, Alphabet's shares took a hit as AI gained significant popularity. Some investors and analysts feared that ChatGPT, the popular AI chatbot, could pose a serious threat to Google. After all, ChatGPT can perform many of the same functions as Google's search engine.
However, this has not been the case. Google has remained dominant, while Alphabet, already experienced in AI well before the emergence of ChatGPT, is making significant strides in the field.
Google now features an AI section at the top of its search page, offering a summary of findings for queries. Alphabet launched Gemini, an AI-powered assistant. The company also provides various AI tools through its cloud computing division, Google Cloud.
Alphabet's AI initiatives are contributing to its robust financial performance. In the third quarter, the company's revenue of $88.3 billion soared 15% year over year. Its net income increased 33.6% to $26.3 billion.
Executives have praised the impact AI is having on Google's array of products and services. However, it's Alphabet's competitive advantage and innovative spirit that truly make it a "forever stock." Alphabet boasts a moat from multiple sources, including its recognized brand name and the network effect.
The term "Google" has become synonymous with what the service provides. It will be challenging for the company to lose its grip on search, given that it uses data from searches to fine-tune its algorithm, making it more valuable with each use.
This dynamic also extends to YouTube, a leader in streaming, another industry with long-term growth potential. Alphabet generates substantial free cash flow, although it has decreased in the past year.
The tech giant has ample resources to invest in research and development. It wasn't by chance that Alphabet swiftly developed a competitor to ChatGPT.
Lastly, Alphabet has become a dividend stock. While its dividend program is relatively new, reinvesting the dividend alongside the kinds of returns Alphabet can generate over the long term will make the stock even more captivating.
2. Meta Platforms
Meta Platforms is the corporation behind Facebook, Instagram, and WhatsApp. The company is banking heavily on AI: Management expects significant capital expenditure growth to continue through 2025, primarily due to AI-related infrastructure investments.
Investors may not be thrilled about Meta Platforms' increased spending, but the technology is boosting the company's results. Meta AI, its virtual assistant, is a leader in this niche. Meta's AI-powered algorithms on Facebook and elsewhere are aiding in higher user engagement. Regarding advertising, it's crucial for a company that generates the majority of its revenue from ads.
On the other hand, Meta's AI-powered algorithms are aiding businesses in creating ads through generative AI, a more efficient and speedier alternative.
Meta Platforms' financial results remain solid. In the third quarter, revenue increased 19% year over year to $40.6 billion. Its net income rose 35% to $15.7 billion, while its daily active people grew 5% year over year to 3.29 billion.
Meta Platforms' heavy investments in AI may put pressure on its profit margins in the short term, but its long-term potential remains intact. With a user base of over 3 billion, this gives Meta Platforms a significant competitive advantage. It provides the company with numerous monetization options, be it through AI, e-commerce, short-form videos, or its paid messaging on WhatsApp.
Meta Platforms also benefits from the network effect. Facebook and Instagram become more valuable to users or advertisers (or influencers) as they attract more people into their ecosystems.
As a result, Meta Platforms, with its immense user base, strong moat, various growth avenues, and a dividend program that is also relatively new, is well-positioned to deliver yet more market-beating returns to patient investors.
- Despite initial concerns about ChatGPT threatening Google's search engine, Alphabet's robust AI initiatives have proven to be a significant financial booster. With the launch of Gemini, AI tools through Google Cloud, and AI integration in its search engine, Alphabet's revenue and net income have both witnessed substantial growth, reinforcing its position as a "forever stock" due to its recognized brand name and the network effect.
- Meta Platforms' dedication to AI is evident in its expectations for continued capital expenditure growth through 2025, primarily due to AI-related infrastructure investments. This commitment to technology has resulted in enhanced user engagement on Facebook and Instagram, improved ad creation through generative AI, and a leading position for Meta AI in the virtual assistant market. Although Meta Platforms' investments in AI have temporarily impacted its profit margins, its long-term potential, massive user base, and various monetization options, such as AI, e-commerce, and WhatsApp's paid messaging, make it a promising investment for patient investors.
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