While the buzz surrounding artificial intelligence (AI) has drawn significant investor focus, experts suggest that the technology remains in its nascent stages, indicating substantial growth potential in the foreseeable future. Analysts have identified two AI stocks that are poised for long-term investment.
Alphabet (NASDAQ: GOOGL) stands out for its comprehensive AI offerings, uniquely positioning itself for future growth. The tech giant has not only developed a leading AI model but has also engineered world-class AI chips. This combination affords Alphabet a structural cost advantage and creates diverse revenue streams.
Central to Alphabet’s success are its tensor processing units (TPUs), custom ASICs that have been in development for over a decade. These chips are instrumental in handling extensive internal workloads and training the Gemini large language model (LLM). Compared to Nvidia’s GPUs, TPUs are significantly cheaper and more energy-efficient, allowing Alphabet to allocate more computing resources to Gemini. This results in one of the most advanced AI models available, which the company seamlessly integrates across its ecosystem to enhance products and services. For instance, leveraging its established presence in Google Search, Alphabet utilizes its distribution channels—such as Chrome and Android—to deliver AI-enhanced experiences to users, driving up search queries and revenue.
Alphabet’s cost advantage also extends to its expanding Google Cloud business. By offering competitive pricing with its TPUs, Alphabet not only captures larger margins but also paves the way for new revenue opportunities by potentially selling TPUs to external customers. Projections from Morgan Stanley indicate that for every 500,000 TPUs sold, Alphabet could generate a staggering $13 billion in revenue. As demand for computing power escalates within the AI landscape, Alphabet’s structural advantage may only grow, making it a strong candidate for long-term investment.
In addition to Alphabet, Broadcom (NASDAQ: AVGO) emerges as another robust option for AI-focused investors. The company played a crucial role in the development of TPUs alongside Alphabet. As a leader in ASIC technology, Broadcom provides the essential blueprints and intellectual property that facilitate the mass production of chips. Alphabet’s cloud strategy, featuring TPUs, significantly benefits Broadcom, which is projected to fulfill $21 billion in TPU orders for Anthropic this year—a development that reinforces the partnership between the two companies.
Beyond its collaboration with Alphabet, Broadcom is witnessing increased demand from other tech giants like OpenAI and Meta Platforms, which are also looking to develop custom AI chips. The company anticipates its AI ASIC revenue will surpass $100 billion by fiscal 2027, a remarkable increase from the $64 billion recorded in its most recent fiscal year. Notably, Broadcom has indicated that the shift toward ASICs is unlikely to adversely impact its semiconductor segment gross margins, contrary to common expectations.
Broadcom is additionally making strides in data center networking, a growing sector as AI chip clusters expand. The company reported a 60% increase in this area last quarter and expects continued acceleration in revenue.
In conclusion, both Alphabet and Broadcom represent compelling opportunities for investors seeking long-term growth in the AI sector. As the technology matures and demand escalates, these companies are well-positioned to thrive in a rapidly evolving landscape.
