Artificial Intelligence (AI) is transforming industries and redefining the future of technology. From automating routine tasks to powering groundbreaking innovations, this technology’s impact is vast and growing. The concept of machine-powered analytics isn’t new, but generative AI upped the ante with a brand new set of semi-creative tools and the time for so-called artificial general intelligence may be right around the corner.
For investors, this AI revolution presents a unique opportunity to capitalize on the companies leading the charge in AI development and applications. While many stocks compete for attention in this rapidly evolving space, two household names stand out for their robust AI strategies and potential for long-term growth.
Let’s explore why these classic technology powerhouse stocks are worth buying now and holding for decades.
Amazon: The e-commerce king also reigns in the cloud
With its diverse businesses and robust technology, Amazon.com (AMZN) looks like a compelling AI investment for the long haul.
It starts with Amazon Web Services (AWS), a crucial backbone of the modern AI industry. AWS is a dominant cloud computing platform favored by numerous AI developers and researchers. 31% of the global cloud computing market pours cash straight into Amazon’s revenue streams, according to Synergy Research Group’s data. This massive computing platform gives Amazon a central role in AI’s continued expansion.
Amazon isn’t just a provider of AI services, either. The company has employed AI to streamline its vast e-commerce operations for years, enhancing everything from inventory management to personalized recommendations. Its shipping centers and warehouses are automated to the hilt, all thanks to machine learning and other AI tools. This not only improves the customer experience but also drives efficiency — and makes sure Amazon stays at the bleeding edge of AI research. This company eats its own digital dog food.
And it’s not just software, either. Amazon is actively developing its own AI chips, based on chip architectures from Arm Holdings (ARM). This move can reduce Amazon’s reliance on Nvidia (NVDA) and other external suppliers, solidifying the company’s position in the AI landscape. In-house chip designs also reduce Amazon’s AI hardware costs.
Here’s perhaps the best part. Despite its immense $1.9 trillion market capitalization, Amazon’s stock is reasonably valued at 3.2 times sales and 31 times forward earnings estimates. The stock has barely outperformed the S&P 500 (^GSPC) index in 2024 and trails a long way behind market darlings like Nvidia.
In essence, Amazon’s extensive reach across multiple sectors, combined with its deep investment in AI technology, makes it a multifaceted and promising AI stock for the long haul. Amazon was a fantastic long-term holding before the AI boom, and only more so with this new business booster.
IBM: The quiet giant rousing to AI’s potential
While not always in the AI spotlight, IBM has a rich history and a strong foothold in the history of artificial intelligence.
IBM (IBM) has been a leader in artificial intelligence for decades. A key moment came in 1997 when IBM’s Deep Blue chess computer defeated world chess champion Garry Kasparov, highlighting the potential of computerized logic in complex problem-solving. In 2011, IBM’s Watson beat human champions Ken Jennings and Brad Rutter on Jeopardy!, proving the power of natural language processing and AI’s ability to handle vast information in the blink of an eye.
Beyond these high-profile public events, IBM has consistently led in AI research, holding tons of AI patents and pioneering technologies in machine learning, natural language processing, and AI-driven analytics. The company filed for more AI-related patents than any other company in 2023 while ChatGPT creator OpenAI didn’t even place among the top 25 AI innovators. This intellectual property gives Big Blue real muscle in the battle for AI leadership.
The company’s broad and deep portfolio of AI tools and services doesn’t write headlines as often as OpenAI and friends, though. That’s because IBM aims its AI tools on enterprise-class customers, setting other large companies up to solve difficult problems with the help of the Watson engine and its related services.
This strategy comes with upsides and downsides. IBM’s preferred class of large-scale customers is deep-pocketed and tends to commit to good solutions with long-term contracts. On the other hand, new ideas and tools must be put through the paces of testing and approvals, often on many different levels of leadership. That can take a long time, delaying the final John Hancocks on IBM’s revenue-generating agreements.
So IBM may seem a bit late to the AI races, but the company has been building the business relationships and AI contracts of a long-term success story — behind the scenes. And as IBM’s earnings reports have shown, the preliminary testing is starting to result in actual money-making deals by now.
IBM’s quiet work in AI is coming to fruition. The company is no longer just a research hub; it is poised to capitalize on its AI expertise through practical, real-world applications for businesses.
In short, IBM’s long-standing commitment to AI research, its extensive patent portfolio, and its focus on enterprise clients make it a compelling, if often underestimated, player in the AI investment arena. As AI adoption accelerates, IBM could emerge as a significant beneficiary. And if you thought Amazon’s stock looked affordable, you’ll need to look twice at Big Blue. These shares trade at the bargain-bin valuation of 2.8 times sales or 14.2 times free cash flow.
Seize the future with these familiar AI leaders
IBM and Amazon have positioned themselves as leaders with unique strengths as the generative AI explosion paves the way toward even greater machine learning achievements in the long haul.
Amazon’s dominance in cloud computing and its extensive in-house use of AI across e-commerce operations make it a versatile and promising investment. Meanwhile, IBM’s deep-rooted expertise in AI research and its focus on enterprise solutions provide a solid foundation for future growth.
As AI continues to expand and integrate into various sectors, these two companies are well-equipped to harness its potential and deliver long-term value to investors. And at the same time, the stocks trade at bargain prices compared to the biggest headline grabbers in this era of AI innovation.
By adding Amazon and IBM to your portfolio, you’re not just investing in AI technologies but in the future of innovation and industry leadership. You’re also setting yourself up to make a mint as the companies should run in the AI vanguard for decades to come.
— Anders Bylund
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Source: The Motley Fool