Artificial intelligence (AI) is one of the hottest terms in technology right now. Given the complexity of AI, it is difficult to separate the contenders from the true innovators.
The industry is expected to grow 20% per year through 2029 and reach over $1 trillion in annual spending worldwide. Companies that are leaders in AI and machine learning can capture much of this spending, helping their business grow and ensuring their stocks generate excellent returns for shareholders.
Here are two AI stocks that look poised for a bull run over the next decade.
1. Alphabet: Multiple AI machines working in tandem
Alphabet (GOOG 0.27%) (GOOGL 0.42%) is the parent company of Google, YouTube and the Google Cloud Platform. The tech giant is one of the world’s leading AI companies, using it to aid its search, mapping and other functions.
CEO Sundar Pichai repeatedly pointed to Google’s research on Alphabet’s recent study earnings callclaiming that the company is using AI to deliver “meaningful improvements to search”, and that he believes AI is the next big thing after mobile phones.
Here are some examples of how this can work in practice. With billions upon billions of insights across Google Search, YouTube, and Google Maps, Alphabet is able to harness AI to dramatically improve search results no matter where customers begin their inquiries.
This means that if, for example, you Google how to fix a particular device, it will bring up a YouTube tutorial for you to read to find out exactly what you need to do. As these AI models ingest more data, they will continue to improve search results, which will improve Google’s customer experience.
Through Google Cloud, Alphabet’s cloud infrastructure segment, the company sells its AI capabilities to other companies. Businesses of all sizes that want to use AI but don’t have in-house search capabilities (and there are very few that do) can buy Google’s machine learning products through the cloud. This is a key reason why Google Cloud’s revenue grew 38% year-over-year last quarter.
Down 34% this year, Alphabet has a market capitalization of $1.2 trillion. Over the past 12 months, it has generated $67 billion in net earnings, giving the stock a trailing price-to-earnings ratio (PER) ratio of 17.9, below the market average. For a company with such an AI advantage and a huge opportunity to grow its business this decade, now seems like the perfect time to acquire shares of Alphabet.
2. Ansys: stimulating innovation through simulation
Alphabet is an AI leader for the internet, but there are several companies working on AI for more physical applications such as semiconductors, the space economy and the automotive sector. Walk in Ansys (ANSS -0.51%)the world leader in simulation software for research and development departments.
Ansys offers dozens of software products that cover a variety of end markets, but all with a common goal: to simulate the real world in a multiphysics environment. “Multiphysics” is a general term that means to reproduce real-world physical properties such as electricity, heat, or stress loads on a product, but in a simulation.
Along with other engineering software vendors, Ansys helps companies like You’re here and rocket lab perform simulations for their manufactured products in a realistic software environment, saving time and money on their research budgets.
Engineering simulations require a lot of computing power, which Ansys is trying to improve through its research on AI and machine learning. The company says AI can help with the speed and accuracy of these simulations, which makes sense since machine learning is usually just a big data problem.
These developments should not only help Ansys improve its products for customers, but also set it apart from any software challenger, isolating it from the competition.
Today, Ansys has a market capitalization of $22 billion. Over the past 12 months, it has generated net income of $469 million, giving the stock a P/E of 47. That’s a lot more expensive than Alphabet, but with the huge opportunity to growth that Ansys has in areas like semiconductors, space economics. , and electric vehicles, I think stock is still a great buy, even at today’s premium price.
Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Brett Schaefer has no position in the stocks mentioned. The Motley Fool has positions and recommends Alphabet (A shares), Alphabet (C shares) and Tesla. The Motley Fool recommends ANSYS. The Motley Fool has a disclosure policy.