Artificial intelligence (AI) is one of the market’s driving themes in 2024, with many stocks hitting new highs. Although there is still a lot of hype, AI looks more like a major technological shift than a fad. Investors who want to profit from it should consider buying and holding these three AI stocks for the long term.
1. Nvidia
Nvidia (NVDA 4.45%) initially developed graphics processing units (GPUs) to speed up the rendering of video game graphics. GPUs use parallel processing to divide complex computational tasks into many smaller tasks and solve them simultaneously.
This is exactly the kind of power needed to quickly create high-resolution graphics. However, most calculations that computers perform do not benefit from this approach. That’s why the central processing unit (CPU), a general-purpose chip that can handle most types of calculations and is fast and powerful when tackling sequential tasks, remains at the heart of most PCs and devices.
Realizing that its chips could be used for more than just graphics rendering, Nvidia created a free software platform called CUDA that customers could use to program GPUs for other tasks. Eventually, CUDA became the industry standard that developers were trained and accustomed to using, reinforcing the wide moat that Nvidia enjoys today. Meanwhile, its powerful GPU is being used in more applications. At one time, there was a high demand for the fastest GPUs, especially due to their use by crypto miners.
It turns out that training and enriching AI models involves the kind of computation and big data processing that can only be efficiently handled on parallel processors. So, while big tech companies started using Nvidia GPUs to train AI models as early as 2015, the AI race began after OpenAI made ChatGPT publicly available in 2022. Nvidia’s GPUs became the backbone of its AI infrastructure, and revenue soared.
NVIDIA still has a huge path for growth ahead, as the number of GPUs needed to advance AI models continues to increase rapidly. xAI, backed by Meta Platforms and Elon Musk, is developing new software models using 10 times the GPUs used to develop previous versions.
At a price-to-earnings ratio of less than 31x based on analyst estimates for 2025, Nvidia is an attractively valued AI stock, making it a profitable buy now and hold for the long term. . .
Image source: Getty Images.
2.Microsoft
microsoft (MSFT 1.14%) was one of the first major technology companies to commercially deploy AI through significant investments and partnerships in OpenAI. Since Microsoft began its relationship, the tech giant has moved quickly in the AI space.
The company’s cloud computing division, Azure, experienced significant revenue growth. Azure revenue increased 33% year-over-year in the first quarter of fiscal 2025 (ending September 30), accelerating from 29% growth in the fourth quarter of fiscal 2024. Additionally, Azure still faces capacity constraints given the level of demand from customers who want to build their own AI agents. Management expects Azure growth to accelerate in the second half of 2025 as more capacity comes online.
Microsoft is also embracing AI in other areas of its business. GitHub, which helps programmers develop software, has made significant progress thanks in large part to GitHub AI Copilot. GitHub AI Copilot can complete coding tasks and make suggestions to programmers as they type. Meanwhile, the company has also added various CoPilots to its productivity suite.
Currently costing $30 per person per month for enterprise users, Microsoft 365 Copilot has the potential to be a significant revenue growth driver. These tools can do things like prioritize users’ inboxes in Outlook. Create PowerPoint presentations based on natural language prompts. I suggest rewriting it in Word. It also enables non-programmers to use Python in Excel using only natural language prompts.
Trading at a forward P/E of 32x 2025 estimates, the stock is reasonably priced and looks poised to be a long-term winner.
3. Alphabet
of the alphabet (Google 1.25%) (GOOG 1.31%) Its cloud computing division, Google Cloud, has also seen accelerating growth, reaching 35% year-over-year growth in the third quarter, up from 29% year-over-year growth in the second quarter. More importantly, the business has reached a key inflection point and profits are starting to grow rapidly. Last quarter, the segment’s operating income jumped to $1.95 billion from $1.2 billion in the second quarter and $266 million a year earlier, as the company leveraged the high fixed cost nature of the business. This is because.
But it was Alphabet’s recent technological advances that caught investors’ attention and pushed the stock higher in late 2024. The surge began with the announcement of a major breakthrough in quantum computing with the new Willow chip.
So far, quantum computing systems have proven to be error-prone, and the more quantum bits (qubits) they use, the more mistakes they tend to make. However, Willow’s new quantum error correction technology actually reduces the number of errors as it scales up and uses more qubits.
Although commercial use of quantum computing is still a long way off, it represents a huge opportunity in the long term, and the breakthrough in error reduction has investors excited.
Meanwhile, the company continued to demonstrate its technological prowess with the introduction of its AI video generation platform Veo 2. The early demo product far exceeded OpenAI’s Sora product, which was released just a few weeks ago, in terms of realism and quality. . Alphabet also announced its latest Gemini model. This will be rolled out across our products this year.
Alphabet continues to be a dominant player in online search, and with Gemini and its AI overview, they should be able to create new ad formats and start monetizing queries they couldn’t before. Historically, Google has only served relevant ads for about 20% of search results, so the opportunity to monetize these other queries is huge.
Trading at 18.5 times next year’s expected earnings, Alphabet stock looks cheap.
Randi Zuckerberg is a former Facebook head of market development and spokesperson, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Geoffrey Seiler is with Alphabet. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
