Artificial intelligence (AI) competition has brought out the best in Alphabet.
The company has a large structural cost advantage that should continue to expand.
Meanwhile, Amazon doesn’t get enough credit for its leadership in robotics or its own custom AI chips.
10 stocks we like more than Alphabet ›
With the market near all-time highs and murmurs of an artificial intelligence (AI) bubble and even a possible market crash, there are some stocks I still wouldn’t sell.
While I don’t expect a big market pullback, let’s look at two stocks that I would continue to hold and probably buy more if a dip were to occur.
Image source: Getty Images.
Believe Alphabet(NASDAQ:GOOGL)(NASDAQ:GOOG) will be one of the biggest long-term winners in AI. The reason is that AI is pushing the company to innovate and improve its products.
I would say OpenAI is actually one of the best things to happen to stocks. Before OpenAI came along, Alphabet was largely seen as a great company, but it was bloated and stagnant. However, the competition not only brought out the best in Alphabet, it also highlighted some of the technological innovations it had been working on behind the scenes.
The biggest of these behind-the-scenes innovations were their Tensor Processing Units (TPUs). Alphabet had been using and improving these custom chips for more than a decade, but it wasn’t until recently that investors began to see their importance. These chips give Alphabet a huge structural cost advantage, both within its cloud computing unit but also in training its Gemini large language model (LLM) and running AI inference. Now, even other companies are ready to start deploying Alphabet chips at scale to run some of their AI workloads within Google Cloud.
At the same time, Alphabet has incorporated its Gemini model across its product portfolio, improving them, which is driving revenue growth. Meanwhile, by incorporating AI into Google Search, Maps and Gmail, as well as becoming an AI assistant with Android and soon Apple devices, the company is meeting people where they are active every day. That’s just a huge advantage that will grow over time.
Right now, Alphabet is in the middle of a virtuous cycle, given its vertical integration advantage. That’s why it’s a stock to hold during any market decline.
Like Alphabet, I really like what Amazon(NASDAQ:AMZN) has been doing behind the scenes. The company doesn’t get nearly the credit it deserves for robotics, because it uses it in its own fulfillment centers to drive efficiency rather than selling it to generate revenue. But make no mistake: Amazon is one of the largest robotics companies in the world.
The company has more than 1 million robots in its distribution centers, all of which are coordinated by its DeepFleet AI model. These robots are becoming more advanced and capable of performing more complex tasks. Meanwhile, Amazon is also using AI to help reduce delivery times by optimizing routes, locating hard-to-find delivery locations for drivers, and determining which warehouses are best for storing certain items. This has led to strong operating leverage, and the company saw its segment-adjusted operating income soar 28% last quarter with an 11% increase in revenue.
And while its custom AI chips aren’t as proven as Alphabet’s, Amazon is also making big strides in this area, which should help boost its cloud computing results in the future. It built a world-class data center for Anthropic using Amazon’s Trainium chips, which it is still improving. Meanwhile, Amazon has been in talks with OpenAI to take a stake in the company, which would also see the LLM company begin deploying some of its chips for its workloads. The two companies previously agreed to a seven-year, $38 billion computing deal with AWS (Amazon Web Services), but that would be driven by NVIDIA Graphics processing units (GPU).
Given its leadership in robotics and e-commerce, combined with its position in cloud computing, Amazon looks like a long-term winner whether the market crashes next year or not.
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Geoffrey Seiler has positions in Alphabet and Amazon. The Motley Fool has positions and recommends Alphabet, Amazon and Nvidia. The Motley Fool has a disclosure policy.
2 Stocks I’d Happily Hold During Any Stock Market Crash was originally published by The Motley Fool
