Finding artificial intelligence (AI) stocks that are strong choices to buy and hold for the next decade can be a bit tricky. There are many questions regarding how long some of these companies will be able to maintain their revenue streams, especially once the data center build-out is complete. However, one segment of this sector could have long-term, persistent revenue streams: cloud computing.
Cloud computing capacity is sold on a usage-based model, and as AI usage ramps up, so will the revenues for companies that provide it. Because AI systems create ongoing workloads from training and real-world use, they create lasting demand for processing power. As a result, cloud computing operators look like excellent investments.
My top three stock picks in this realm may seem obvious, as they are the world's largest cloud computing providers: Amazon (AMZN 2.93%), Microsoft (MSFT 2.55%), and Alphabet (GOOG 0.80%) (GOOGL 0.82%). I'm bullish on all three, as cloud computing could soon be the most dominant part of their businesses.
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1. Amazon
Although most people think of Amazon first as an e-commerce company, I see it as a cloud computing company. While the revenues from its e-commerce business unit far exceed those of Amazon Web Services (AWS), the reverse is true when it comes to profits. In Q1, AWS accounted for 59% of Amazon's operating profits.
NASDAQ: AMZN
Key Data Points
Fortunately, there's a lot more growth in store. AWS just delivered its best quarter in nearly four years, with revenue rising 28% year over year. But that's only the start.
Amazon intends to invest $200 billion in constructing data centers this year, and its CEO noted in his letter to shareholders that the faster AWS is growing, the more capital the company has to invest in the business to support that growth. Management sees this as a major long-term win in terms of expanding the company's cash flow.
With a strong long-term outlook, I think Amazon is a solid stock to buy and hold over the next decade.
2. Microsoft
While AWS is the world's largest cloud computing provider, Microsoft Azure is the second-largest. Azure has consistently delivered solid growth for several years, and the latest quarter was no exception. Its revenue rose an impressive 40% year over year, making it the fastest-growing Microsoft business unit.
NASDAQ: MSFT
Key Data Points
Microsoft is also investing billions into its data center footprint, and there's no reason to expect its growth rate to decelerate anytime soon. Azure is one of my top reasons to invest in Microsoft, and its continued success will be key to the overall business's success.
3. Alphabet
Although Alphabet's Google Cloud is the smallest of the big three, it's growing the quickest. In Q1, revenue rose 63% year over year. However, it had a little help.
One of the primary reasons why Google Cloud has become a top place to train and run AI models is its Tensor Processing Units (TPUs). These custom AI chips can run at a cheaper rate than GPUs, but only for workloads that are configured properly for a TPU. However, a growing volume of workloads fit the specs that these application-specific integrated circuits (ASICs) were made to handle, which explains why they are becoming increasingly popular. And now, instead of only installing them in its own data centers, Alphabet is also selling them to external clients.
NASDAQ: GOOGL
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That has created a new income stream for Google Cloud and boosted its revenue. However, it's still rapidly growing its core Google Cloud business and deserves inclusion alongside these other solid cloud computing companies.
All three of these companies will continue to cash in on the AI build-out for years after most assume it's over. The infrastructure each is now spending hundreds of billions of dollars to construct will likely yield a far greater return on investment than the money would if used in other areas. As a result, I'm bullish on their future and think they are all excellent investments.
