Over recent years, companies advancing artificial intelligence (AI) have significantly driven the stock market upward. Current economic challenges have affected stocks, but investors who seize this volatility to purchase leading AI stocks at lower valuations might reap considerable returns over time.
PwC’s "Sizing the Prize" report indicates that AI could bolster global gross domestic product by 14% by 2030, translating to over $15 trillion in economic value. The following are two robust business stocks poised to capitalize on this opportunity.
1. Amazon
Amazon, listed under the ticker symbol AMZN, is a prominent retail brand with over 200 million customers who subscribe for Prime benefits like free shipping and digital entertainment. Beyond retail, Amazon is a crucial player in AI, influencing its growth trajectory.
Amazon Web Services (AWS), the foremost cloud service provider, ranks among Amazon’s fastest-expanding segments, with revenue increasing 19% year-over-year in the fourth quarter. AWS experiences substantial demand for AI-related services that enable businesses to create AI applications and streamline operations. While cloud services comprise only 15% of Amazon’s overall business, AWS accounts for roughly half of the company’s operating profit.
Amazon’s AI investments also enhance its online retail operations, through initiatives such as AI-powered shopping tools like Rufus and Amazon Lens, which allow customers to locate products using images via Amazon’s mobile app. Such innovations are likely to boost sales and expand Amazon’s $247 billion revenue from online retail.
Amazon’s expansive resources facilitate continuous innovation. With a net income climbing to $59 billion last year on $638 billion in total revenue, Wall Street analysts predict a 21% annual compound earnings growth rate for the company. The amalgamation of Prime membership-driven repeat purchases and cloud service expansion underscores Amazon’s potential as a leading AI stock.
2. Alphabet (Google)
Alphabet, under the ticker symbols GOOG and GOOGL, owns influential internet brands Google and YouTube, which significantly benefit from AI. Alphabet has demonstrated efficient returns from AI investments across digital advertising and cloud services.
As a leading online advertiser driven by its dominant search engine, Google Search generated $54 billion of Alphabet’s $96 billion total revenue in the fourth quarter. Despite advertising being contingent on economic growth, Alphabet’s revenue grew by 10% in 2022, even amid a declining ad market, as digital platforms capture a growing share of the $1 trillion annual ad expenditure.
Alphabet seeks to harness this potential by integrating AI throughout its services. The company’s Gemini AI model, lauded as one of the top models, enhances various offerings, including Search, Gmail, Maps, and YouTube, which collectively serve over 2 billion users. As AI elevates the utility of Google’s services, advertiser spending is likely to increase.
Google Cloud, another major Alphabet service, posted a 30% year-over-year revenue rise in the fourth quarter, driven by AI-powered solutions in data analytics, cybersecurity, and the Vertex AI platform for developing custom AI models.
Analysts project Alphabet’s earnings to grow at an annualized rate of 17% in the coming years. Given its modest forward price-to-earnings ratio of 18, the stock presents a compelling purchase opportunity.
John Mackey, former CEO of Whole Foods Market (an Amazon subsidiary), and Suzanne Frey, an Alphabet executive, serve on The Motley Fool’s board of directors. John Ballard holds no positions in the mentioned stocks. The Motley Fool owns and recommends positions in both Alphabet and Amazon, as per their disclosure policy.
