Artificial intelligence (AI) is new and full of exciting potential. But just like the internet, AI will evolve, so it's hard to say what the future will look like. So, how does someone invest in AI for the long term? Not for next year, but for decades out?
If it were me, I would look beyond specific AI applications and instead focus on what will drive AI's evolution. At its core, AI needs three things: chips, cloud, and data. These are what power, train, and distribute AI technology to the world. So, you want to invest in AI? Look for the companies leading in these three areas.
In that lens, three AI stocks instantly jumped out: Arm Holdings(NASDAQ: ARM), Amazon(NASDAQ: AMZN), and Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL).
Buy them all for roughly $500 today and hold them for decades to profit from AI, a story still in its early chapters. Here is the pitch for each stock:
Everything "smart" runs on CPUs, so pick up the ultimate picks-and-shovels AI chip stock
Nvidia has received considerable attention since its GPU chips are used to train AI models, but I think Arm Holdings might have better long-term positioning. Most of the AI innovation you see today is contained within data centers, where powerful AI models like ChatGPT are trained. But over time, AI technology could spread across everyday life. Vehicles may drive themselves, and your glasses might have as many capabilities as your smartphone -- who knows what else will be possible.
Anything AI touches must have a computer, which is where Arm comes in. Arm designs architecture for central processing units (CPUs), chips that effectively act as a computer's brain. The company earns royalties and fees for every chip built using its proprietary designs.
That's a big deal because Arm is dominant. Virtually every smartphone on Earth uses Arm-based chips, and the company is picking up market share across almost every notable technology end market.
According to Statista, Arm's market share increased from 42% to 49% from 2020 to 2022. This strong momentum seemingly bodes well for the company's future as the broader need for chips grows over the coming decades. It's hard not to like Arm if you're an AI investor thinking years ahead.
AI will run through the cloud, making Amazon an AI must-have
The cloud isn't in the sky; it's in data centers. Companies like Amazon build massive centralized computing systems and then rent out capacity. It's cheaper for companies to purchase cloud computing power than to build and maintain their own systems. Amazon started as an e-commerce company, but it has built Amazon Web Services (AWS) into the world's leading cloud platform with an estimated 31% share of the world's cloud market.
The broad migration of computing to the cloud has made it a natural tie-in with AI since companies using AI will almost assuredly power it through the cloud like they would their other technology. Most of the world's cloud market belongs to a big-tech trio of Amazon, Microsoft, and Alphabet. Amazon's proven ability to create and grow new businesses makes it my pick here. Amazon is an e-commerce and cloud juggernaut and is building a massive advertising business that could become a bigger deal down the road.
Buy Amazon for its AI upside via AWS, but its collective business and growth-focused culture (despite its massive size) have made the stock one of the best long-term investments ever. I expect Amazon to continue creating wealth for investors for the foreseeable future.
No company has first-party data like Alphabet
Data is the last ingredient of AI, as it needs data to train and learn. Alphabet controls 90% of the world's internet searches via Google, which has dominated for more than two decades to the extent that it was formally declared a monopoly earlier this year in court after the U.S. Justice Department sued Alphabet for anticompetitive practices. Alphabet has data on nearly everything anyone has ever searched for online, an unimaginably powerful trove of first-party data that can't be replicated anywhere else.
It goes beyond Google. Alphabet owns YouTube, the world's largest video platform, and Android, the mobile operating system used by 70% of the world's smartphones. An estimated 3 billion people use Google software applications like Gmail to organize their lives. You might say that Alphabet knows you better than you know yourself since it has access to virtually every interaction you've had with a computer or smartphone.
It remains to be seen what will happen to Alphabet due to its antitrust suit. Still, Alphabet represents an all-in-one AI package with a data advantage over arguably any other AI company and the vast financial resources to build on that advantage. Like Amazon, the company's AI opportunities will likely create immense value for shareholders over the coming decades.
Should you invest $1,000 in Arm Holdings right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
