While artificial intelligence (AI) has gained a lot of investor attention, the technology appears to still be in the very early innings. As such, it should be a growth driver for quite some time. Let’s look at two AI stocks you can buy and hold for the next decade.
As the company with the most complete AI stack, Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG) finds itself in a good position moving forward. It is the only company that has developed both a top-tier AI model and world-class AI chips. This ultimately gives the company a structural cost advantage and multiple potential revenue drivers.
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Alphabet’s secret sauce starts with its tensor processing units (TPUs), which are custom ASICs (application-specific integrated circuits) it first developed over a decade ago. It has long used TPUs to run much of its internal workloads, as well as to train its Gemini large language model (LLM). TPUs are much cheaper than Nvidia‘s graphics processing units (GPUs) and more energy efficient, giving Alphabet a cost advantage with both training and inference.
With this cost advantage, Alphabet has been able to throw more computing power at Gemini, helping make it one of the best AI models on the planet. In turn, it has incorporated this powerful AI model throughout its ecosystem to make its products better. This includes with Google Search, where the company is using the big distribution advantage it has through the ownership of Chrome, Android, and a revenue-sharing deal with Apple, to bring AI to the tips of users’ fingers through their everyday web-browsing behavior. This is helping to lead to more queries and accelerated revenue growth.
At the same time, Alphabet’s cost advantage extends to its fast-growing cloud computing business, Google Cloud. With its TPUs, Alphabet can offer customers cheaper computing power while also capturing higher margins. It can also capture more of the revenue stream by offering Gemini and other AI services. Meanwhile, it is considering offering its TPUs to customers outside of Google Cloud, which could add another revenue driver. Morgan Stanley has estimated that for every 500,000 TPUs it sells, it can generate $13 billion in revenue.
Alphabet’s structural cost advantage should just increase over time as more and more computing power is needed with AI infrastructure, making it a top stock to own for the long haul.
Image source: The Motley Fool.
Another top AI stock to own over the long term is Broadcom(NASDAQ: AVGO), which helped Alphabet co-develop its TPUs. Broadcom is a leader in ASIC technology, where it helps provide the blueprints and important intellectual property, like SerDes (Serializer/Deserializer) and memory controllers, to help turn a customer’s chip designs into physical chips that can be manufactured at scale.
As Alphabet continues to scale out its cloud computing business with its TPUs, it nicely benefits Broadcom. The company is also set to deliver $21 billion in TPU orders to Anthropic this year, which will be used within Google Cloud. Broadcom will also benefit if Alphabet starts selling these chips for use outside of Google Cloud.
Given Alphabet’s success with its TPUs, other hyperscalers (owners of massive data centers), including OpenAI and Meta Platforms, have also flocked to it to help them develop their own custom AI chips. Broadcom now expects its AI ASIC revenue to exceed $100 billion in fiscal 2027, which is more than 50% higher than the $64 billion in total revenue it generated in its last fiscal year. Importantly, the company also said this shift toward ASICs will not have a big impact on its semiconductor segment gross margins, which most analysts had expected it would.
At the same time, Broadcom is a leader in data center networking, which is becoming increasingly important as AI chip clusters grow larger. This business is growing quickly, with revenue up 60% last quarter and expected to accelerate in the current quarter.
Overall, Broadcom is one of the most explosive growth stories in AI, making the stock a solid, long-term buy.
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Geoffrey Seiler has positions in Alphabet, Broadcom, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Apple, Meta Platforms, and Nvidia and is short shares of Apple. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
