There's simply no way to ignore what's going on in the world of artificial intelligence (AI). The recent advancements in generative AI and large language models (LLMs) -- which underpin next-generation chatbots -- went viral, sparking interest from consumers and the investing public alike.
Yet, despite the hype, the vast opportunity appears genuine, and even conservative estimates are breathtaking. After crunching the numbers, TD Cowen analyst John Blackledge called it a "monumental shift," concluding that spending on generative AI software will reach $81 billion by 2027, a compound annual growth rate (CAGR) of 190% over five years.
Long-term investors looking to get in on the AI gold rush should focus on industry leaders with proven track records that will benefit from AI in the back half of 2023 and beyond.
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Hot AI Stock No. 1 -- Amazon
While other companies have dominated the headlines, Amazon (AMZN 2.44%) has been toiling quietly in the background, assessing the most profitable ways to integrate generative AI into its sprawling business enterprises.
Amazon has long used AI to manage a broad cross-section of its operations, from its consumer favorite Echo smart speakers to planning the routes for its delivery trucks. AI helps boost conversion rates by surfacing the most relevant products in response to search requests, but it also provides helpful suggestions for additional products purchased by others. It also optimizes warehouse inventory and provides improved product forecasting.
The company is working to perfect its own brand of generative AI to offer to customers of its industry-leading cloud infrastructure offering, Amazon Web Services (AWS). The company recently introduced Amazon Bedrock, which provides users with an easy way "to build and scale generative AI applications."
Amazon remains the undisputed leader in e-commerce, controlling an estimated 38% of the market -- more than its next 15 rivals combined -- according to data compiled by Statista. It's also the cloud infrastructure leader, with 30% of the market in the second quarter, according to market analyst Canalys. Finally, Amazon is the third-largest -- but fastest-growing -- digital advertiser, with about 7% of the market, according to Insider Intelligence. While investors wait for the long-term potential of AI to play out, Amazon's existing businesses provide a strong foundation.
Hot AI Stock No. 2 -- Microsoft
Microsoft (MSFT 0.04%) takes part of the blame for instigating the AI revolution with its $13 billion stake in ChatGPT creator OpenAI. Mister Softy wasted no time taking the latest advancements in generative AI and finding ways to profit.
The company's far-reaching software-as-a-service (SaaS) empire and its No. 2 cloud infrastructure service provide the perfect vehicles to deliver AI tools to its customers. Like its rivals, Microsoft will provide generative AI models and functionality to its cloud customers.
Data by YCharts.
The company quickly introduced Microsoft 365 Copilot, AI-fueled companion software, which provides productivity improvements for users of its cloud-based software offerings. Microsoft recently announced pricing for Copilot at $30 per user per month. It also said Bing Chat for Enterprise will cost $5 per person per month. If customers find these tools useful, it could open up a whole new opportunity for Microsoft.
Meanwhile, investors will benefit from Microsoft's expansive cloud-based software and cloud computing services while it works to build its AI business.
Hot AI Stock No. 3 -- Alphabet
Alphabet (GOOGL 0.72%) (GOOG 0.69%) is another company with a long history of employing AI across its vast empire, yet the company is jumping into generative AI with both feet. The company's latest efforts yielded a litany of AI-driven products and features. The company infused AI into its collection of Workspace productivity apps.
Google is also augmenting its search capabilities with a new feature dubbed Perspectives, which will surface social media and discussion board posts and videos with the aim of providing a broader view of a topic than existing search options. The company is also testing a more robust version of its classic search, which will be able to bring new insight to more complex questions.
In the meantime, Google's trifecta of existing businesses will offer plenty of opportunities for growth.
Google search -- which is powered by AI -- is the company's cash cow and dominates its would-be competitors with 92% of the market. This fuels Google's industry-leading digital advertising business, which garnered nearly 30% of worldwide online ad revenue last year, according to estimates compiled by industry publication Digiday. Let's not forget Alphabet's Google Cloud, the world's third-largest cloud infrastructure provider and the fastest-growing, according to Canalys.
Given its history, there's little doubt Alphabet will find ways to profit from the proliferation of generative AI. Until then, investors can rest easy knowing the company has plenty of existing growth opportunities.
