2 Artificial Intelligence Stocks to Buy and Hold for the Next Decade
Written by Brian Paradza, CFA at The Motley Fool Canada
The artificial intelligence (AI) revolution has brought significant opportunities for investors. Among the top contenders in this space, semiconductor designer Nvidia stands out as a major early winner. Announcing record quarterly revenue and earnings this week, Nvidia’s chief executive officer (CEO) Jensen Huang referred to AI as a “new commodity,” highlighting the vast potential for AI technology as it becomes more widely adopted. For long-term investors, this translates into substantial opportunities for returns. Two promising companies that may ride this AI wave are Qualcomm (NASDAQ:QCOM) and Alarm.com Holdings (NASDAQ:ALRM). Here’s why investors in the two growth stocks could book significant returns over the next decade.
Qualcomm: Profitably driving AI in everyday gadgets
Qualcomm, a leader in wireless technology, is an AI stock well-positioned to power AI-driven devices in the coming years. The $226 billion tech stock’s expertise in 5G, the Internet of Things (IoT), and mobile computing chipsets places it at the core of the rapidly expanding AI economy. Qualcomm’s advanced, energy-efficient chips may dominate the AI-powered gadget market.
As AI becomes a mainstream commodity, Qualcomm’s AI Engine embedded in Snapdragon processors could power billions of AI-enhanced devices. Microsoft recently announced the debut of AI-powered personal computers in partnership with leading PC manufacturers. Qualcomm’s Snapdragon X series chipsets are likely to be a key component in these and many other devices over the next decade.
Qualcomm’s focus on bringing on-device generative AI to consumers could significantly boost its profit margins and sustain its revenue growth in the new intelligent economy. QCOM stock has gained 27% in the past month and delivered a 97.7% total return over the past year. Despite this growth, Qualcomm’s shares remain fairly valued, with a forward price-to-earnings (P/E) ratio of 18.2, compared to the current industry P/E of 53.
Qualcomm’s consistent common stock repurchases and a growing dividend (which currently yields 1.7% annually) make it an attractive buy-and-hold AI stock for the next decade.
Alarm.com: Securing the next decade’s smart homes with AI
Alarm.com specializes in securing homes and premises with AI-enhanced, cloud-based security systems. The US$3.3 billion stock should gain sales growth traction as customers seek intelligent video analytics and proactive security solutions.
A growing customer base, expanded market offerings, and strong earnings margins will support Alarm.com’s steady growth over the next decade. The company reported an 11% annual growth in first-quarter software as a service (SaaS) and license revenue this year. The impressive growth in its largest segment with the most recurring revenue was alongside a 21.2% increase in normalized earnings.
It can be said that crime will remain a nagging societal problem (and cost) over the next decade. Demand for proactive security systems for homes and properties is likely to rise with population growth and new home constructions.
Alarm.com is a cash flow-positive AI stock. It may generate positive returns for shareholders, given growing revenues and positive retained cash flow each year. The stock trades at a reasonable forward P/E of 28.9, significantly lower than the industry average P/E of over 250.
Investor takeaway
Investing in Qualcomm stock and Alarm.com offers long-term growth potential as the two AI stocks capitalize on the AI revolution. Qualcomm’s leadership in AI-driven gadgets and Alarm.com’s expertise in AI-enhanced security systems position them for substantial returns over the next decade. By adding these stocks to your portfolio, you can tap into the transformative power of AI and enjoy sustained long-term capital gains.
The post 2 Artificial Intelligence Stocks to Buy and Hold for the Next Decade appeared first on The Motley Fool Canada.
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Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends Alarm.com, Microsoft, Nvidia, and Qualcomm. The Motley Fool has a disclosure policy.
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