The artificial intelligence (AI) revolution will certainly produce some big winners, but it also has the potential to disrupt large incumbents. How do you ensure you are investing in one of the AI beneficiaries and not the disrupted one?
The question is not easy. But an assessment of a company’s competitive advantages and how it has defended those competitive advantages can provide clues.
When scouring today’s technology landscape, these three companies appear to be excellent additions to your AI-focused portfolio.
Microsoft
will Microsoft (NASDAQ:MSFT) be helped or hurt by AI? It certainly seems to be the former, as the company has extremely large moats throughout its empire and many opportunities to benefit from AI.
Apparently, Microsoft has an exclusivity agreement with OpenAI, the parent company behind ChatGPT. Microsoft has turned this smart partnership into a leadership position in the AI cloud computing race, giving its Azure cloud platform world-class growth compared to its competitors. As one of only three major cloud infrastructure providers where most AI processing is likely to take place, Microsoft stands to benefit from AI’s increasing computational intensity in the coming years.
But Microsoft’s AI advantage goes beyond OpenAI. As a long-time leader in enterprise software, Microsoft has decades of close relationships with the world’s largest companies. With a highly respected brand and the capital strength to invest in the latest innovations, it’s a pretty safe bet that Microsoft can use AI to both increase revenue and reduce costs in the long term.
For example, Microsoft just launched AI CoPilot for Microsoft 365 at $30 per person per month. That’s a big price increase made possible by the large market share that the Microsoft 365 Office software suite enjoys among businesses.
But beyond Azure and Office, Microsoft’s other divisions, each with their own extensive franchises and network effects, are likely to benefit from AI. Social media platform LinkedIn is expected to benefit from expanded AI targeting functionality, and Github users should also benefit from AI natural language prompts for code writing.
And let’s not discount the impact AI can have on Microsoft’s consumer businesses. Microsoft owns the Xbox gaming platform as well as a number of game studios such as the recently acquired Activision-Blizzard, where AI may be able to help create and curate content. Additionally, AI PCs could enable Microsoft to raise prices on its Surface laptops as AI becomes more marginalized.
With several competitive products and services and leading AI capabilities, Microsoft should be a big AI winner.
ASML Holdings
What’s a good stock to sleep at night? A company with a monopoly. And that’s exactly it ASML Holdings (NASDAQ:ASML) has, particularly in the technology required to produce the world’s leading chips: extreme ultraviolet lithography (EUV).
Any AI chips worth their salt require EUV lithography to pack an incredible number of tiny transistors onto a chip. Soon the AI wars will require ASML’s “High-NA” EUV technology, ASML’s newest incarnation of EUV, to compete.
The new high NA system will shrink the critical size of a chip, or the smallest element that can be printed on a wafer, to 8 nm from the 13 nm enabled by traditional EUV systems. That’s a 1.7x improvement that will enable new 2nm chips to be introduced in 2025.
That’s why the new high-NA systems cost about $380 million per person, more than double the cost of the standard EUV systems ASML has sold to date.
This paves the way for rapid sales growth to begin soon, which is expected to continue throughout this decade. What’s notable is that this wasn’t the first company to purchase a high NA system Taiwan semiconductor manufacturingtoday the world’s leading fab company, but rather Intel. That’s because Intel is trying to catch up with TSMC and become one of the largest foundries in the world. Samsung is also likely to follow, as are memory chip makers, all of whom will use high-NA at some point this decade to make the DRAM memory chips that are also critical to AI systems.
Competition between TSMC, Intel and Samsung, as well as governments around the world investing in cutting-edge chips manufactured domestically, is driving strong demand for ASML machines this decade.
Metaplatforms
Artificial intelligence is likely to cement the advantages of companies with large numbers of users and volumes of proprietary data. Not only Metaplatforms (NASDAQ:META) The company has that in spades with its core platforms Facebook and Instagram, but Meta is also becoming a big player in AI model development itself.
At its core, AI can help show Reels that users are more likely to be interested in. And when it comes to monetization, AI helps create and optimize ads, increasing the return on ad spend for advertisers and therefore increasing the price Meta can charge per ad.
Meta also creates large AI language models itself under the brand name Llama. Interestingly, Meta has decided to make Llama open source and essentially give the code away to developers. It’s a strange strategy and different from the competition, but it could be effective. Third-party contributions can potentially improve Llama compared to what Meta could do on its own, and the openness of the model could attract top talent.
Similar to how Facebook initially didn’t make any revenue as it scaled, Llama isn’t making much money now, even though other cloud platforms pay Meta a fee to host the Llama model on their clouds. However, if Llama is used as a base model for many future applications, there is more potential for monetization there.
Meanwhile, Meta, like all other major tech companies, has just launched its own AI chips called Artemis. Meta claims that running workloads on Artemis with its own optimized software will help reduce costs and save energy, although it will still buy a lot of them Nvidia Crisps. to.
Meta has also overcome many challenges in the past. This includes the transition to mobile devices, the threat of Snap, then the even bigger challenge of Bytedance’s TikTok. But Meta has managed to leverage its established position and technological agility to fend off these technical challengers and succeed.
Combined with a brand new dividend, Meta is another stock that investors can easily buy and hold for the long term.
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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Billy Duberstein has held positions in ASML, Meta Platforms, Microsoft and Taiwan Semiconductor Manufacturing. Its customers can own shares in the companies mentioned. The Motley Fool has positions in and recommends ASML, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2023 calls above $57.50 on Intel, long January 2025 calls above $45 on Intel, long January 2026 calls above $395 on Microsoft, short January 2026 $405 calls on Microsoft and May 2024 short $47 calls on Intel. The Motley Fool has a disclosure policy.
“3 Artificial Intelligence (AI) Stocks You Can Buy for $1,000 and Hold Forever” was originally published by The Motley Fool