Adria Cimino, The Motley Fool
·4 min read
Stocks known as the Magnificent Seven -- a reference to the 1960 Western -- have helped the S&P 500 recover from its bear market low and roar into bull territory. These industry leaders all are involved in technology in some way, and each one also offers investors exposure to the high-growth area of artificial intelligence (AI). These players are doing some or all of the following: developing AI, using it to improve their own operations, and selling AI tools to customers.
You don't have to buy every Magnificent Seven stock to benefit though. By scooping up shares of just a couple of these players, you can gain access to a company that already has proven its ability to grow earnings over time and has what it takes to win in a potential AI revolution. In even more good news, you don't need a fortune to invest in these promising AI stocks. In fact, with less than $500, you can buy two top Magnificent Seven AI stocks -- ones you'll want to hold onto for the long term.
1. Amazon
Amazon (NASDAQ: AMZN) is a giant in two high-growth areas -- e-commerce and cloud computing -- that have helped the company bring in billions of dollars in earnings in recent years. The company's dominance in these markets is set to continue as it's invested in key areas to support growth.
For example, in e-commerce, Amazon recently reached its fastest delivery times ever and aims to get even speedier. And in cloud, Amazon Web Services (AWS) has invested heavily in technology infrastructure and expanded its offerings.
All of that sounds good, but Amazon's focus on AI makes the picture even brighter. The company is using this technology across its e-commerce business to streamline operations and better serve customers. This should result in cost savings and keep shoppers coming back -- and that is set to boost earnings over time.
And AWS is bringing a vast menu of AI products and services to its customers, from access to top chips to power platforms to a fully managed service that lets them customize already existing large language models. These efforts also should lift earnings over the long haul.
Amazon has a track record of growth in return on invested capital (ROIC) over time, showing the company has made wise investment decisions. So, there's reason to believe this trend could continue.
AMZN Return on Invested Capital data by YCharts
And you can get in on this story for about 42x times forward earnings estimates, a deal considering Amazon's strength in both e-commerce and cloud, and its long-term AI prospects.
2. Alphabet
Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is another leader in its field. The company is parent of search engine Google, which consistently holds more than 90% of the global search market. And it's very likely Google will hold onto its position well into the future.
Why? Because it's become part of most people's routines and even entered our vocabulary: If you don't know the answer to a question, you "Google it." So as long as Google continues generating good search results, it should stay ahead.
But Alphabet is doing something to truly ensure the quality of its searches and therefore hang onto its market share. The company is investing in AI. Alphabet's Search Generative Experience, available in certain countries, already is speeding up searches and offering a broader range of links and answers to questions.
Staying ahead in search is crucial for Alphabet since the company makes most of its revenue from advertising on the Google Search platform. If advertisers continue to see that most people favor Google, they'll continue spending their ad dollars there -- and if AI makes Google Search even better, advertisers might even increase their Google ad spending.
But Alphabet isn't stopping there. The company recently announced its most powerful AI model ever, Gemini, and is applying it across its products and services. This tech powerhouse may be a smaller player than Amazon in cloud services, but Google Cloud is posting strong growth -- with double-digit gains in the most recent quarter. And its offering of AI tools could keep that solid pace of growth going.
All of this means Alphabet looks dirt cheap at 22x times forward earnings estimates and could be a winning AI stock for you over time.
Should you invest $1,000 in Amazon right now?
Before you buy stock in Amazon, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the10 best stocks for investors to buy now… and Amazon wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service hasmore than tripledthe return of S&P 500 since 2002*.
*Stock Advisor returns as of March 21, 2024
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. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool has a disclosure policy.
2 Top "Magnificent Seven" Artificial Intelligence (AI) Stocks to Buy With $500 and Hold for the Long Term was originally published by The Motley Fool
