2 artificial intelligence (AI) stocks to buy now and hold for decades

Artificial intelligence (AI) technology came into the limelight last year, taking the stock market to new heights. It’s fair to debate the short-term impact of AI and whether the market is expecting too much now, but it seems clear that AI will change the world in the coming decades. However, like the Internet bubble of the early 2000s, not all AI stocks will be long-term winners.

That said, there are some early favorites: companies with world-class business models that own the three most important aspects of AI technology:

• Funds to invest in the computing requirements of AI.
• Data for training AI models.
• A means to distribute AI technology to the world.

Two companies seem to meet all three criteria. Consider buying them and watch your portfolio grow for decades to come.

1. Meta platforms

It seems strange at first that a social media company would be considered the potential big winner in artificial intelligence. Still Meta platforms (META -1.83%) seems to have pole position in this AI arms race.

It starts with Meta’s core social media business, which is perfect for distributing AI products. Meta has made its AI Llama model available to the more than 3.2 billion people who connect to Facebook, Instagram and WhatsApp every day. In addition, Meta has very little competition. Sure, there’s TikTok, but the app has ties to the Chinese government. Meanwhile, Elon Musk privately owns X (formerly Twitter), which lacks the financial resources to compete with Meta.

Co-founder Mark Zuckerberg still runs Meta and has fully geared himself towards artificial intelligence. The company spends billions of dollars annually on AI research, data centers and GPU chips.

Meta has the financial means to achieve its goals; its main advertising business is very profitable. Meta generates $150 billion in annual revenue and $50 billion in free cash flow. Remember that free cash flow is what’s left after Meta invests billions of dollars in AI investments.

However, Meta’s main advantage in the AI ​​race is its raw data. You may not realize it, but social media apps track almost everything you do on your smart devices. Meta uses this data to deliver the ideal ad to you, but it’s also valuable for its AI efforts because AI models have to train on massive streams of data that not many companies have. People have criticized companies like OpenAI for scraping data off the internet, but Meta doesn’t have that problem.

Put it all together: AI needs massive investment in robust computing hardware, rich data to train models, and a way to distribute the technology to users. Many companies have one or two pieces of this, but Meta owns the whole stack. This all but ensures that Meta is a significant player in AI as the industry matures over the coming decades.

2. The alphabet

The internet search giant Alphabet (GOOGL -3.69%) (GOOG -3.94%) is the other company coming out. Alphabet dominates internet search over social media. Alphabet owns the Google search engine, which performs more than 90% of the world’s internet searches. In addition, it owns the YouTube video platform, arguably the world’s dominant video-based search engine and the second most trafficked site after Google. It’s an ideal distribution for Alphabet’s Bard AI model, which the company has already woven into its various Google products.

Alphabet also has the financial means and the will to invest in AI. At its core, Alphabet is an advertising company; generates over $328 billion in annual revenue and $60 billion in free cash flow. Again, that’s $60 billion after management has invested billions in building data centers and other AI resources. Management also stressed in earnings calls that Alphabet sees AI as a key to long-term competitiveness and is committed to building its AI capabilities.

And yes, Alphabet has a treasure trove of primary user data based on the countless internet searches the world has performed in the two decades Alphabet has dominated search. People use Google and YouTube to search for what they like, what they’re interested in, and what they’re curious about. Having the best data can help create the smartest AI.

Alphabet is so powerful that the government sued the company for anti-competitive practices and won. Penalties for Alphabet could range from fines to splitting up its business. This may sound scary, but investors shouldn’t panic or necessarily avoid holding stocks because of it.

Investors can confidently buy and hold both stocks today.

No one likes to overpay for a stock, even if a decades-long holding period makes valuations less relevant. Fortunately, both stocks are trading at reasonable valuations for expected growth:

META PE Ratio data (before) by YCharts

Their respective PEG ratios (1.4 for META and 1.2 for Alphabet) should give investors confidence in stock accumulation and a good idea of ​​their long-term prospects.