Alphabet has made impressive inroads in cloud and hardware AI.
AI could boost Amazon’s e-commerce margins over time.
C3.ai isn’t Palantir, but it could be the better stock right now.
10 stocks we like better than Alphabet ›
Successful long-term investing is usually the result of an accumulation of smaller steps and consistency. It’s like building a house brick by brick.
You can begin with any amount of money, but $1,000 is a good starting point because it provides you with several choices. Investing in growth stocks can be a potent wealth-building strategy, especially if you have the time and patience to let those stocks grow. And yes, $1,000 is plenty of money to buy a piece of several high-quality names with competitive footing in high-growth industries, like artificial intelligence (AI), e-commerce, and more.
Here are three growth stocks to consider. I think their proven success and long-term potential make them the smartest places to invest $1,000 today.
Image source: Getty Images.
Google’s parent company, Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG), is a multifaceted technology juggernaut. The company’s Google-branded products and YouTube receive much of the attention, but its increasingly stronger foothold in AI is becoming a significant story for the future.
Alphabet’s Gemini has already become one of the most popular AI models, and Waymo is building on its lead in autonomous vehicles. More recently, OpenAI has begun using Google Cloud to support its vast computing demands, as well as the company’s Tensor Processing Units (TPUs), marking the first time OpenAI has pivoted from industry leader Nvidia for its chips.
It’s still early, but Alphabet could be positioning itself as one of the most well-rounded AI companies, with exposure to AI models, infrastructure, and real-world uses such as autonomous vehicles. It makes the stock a no-brainer at a time when shares trade at just 20 times earnings, one of its cheapest valuations in recent memory.
It’s no secret that Amazon(NASDAQ: AMZN), the world’s leading cloud services company, is an AI winner. The technology is boosting cloud demand, supporting growth in the company’s most profitable business unit.
And AI represents a potential game-changer for its e-commerce business, which contributes the bulk of the company’s sales but comes with razor-thin profit margins.
Amazon’s e-commerce relies on a complex and expensive supply chain that requires thousands of personnel to fulfill orders and deliver goods to customers. But over the coming decade, the company could replace many of those people with automation and robotics. It has already started to, particularly in its distribution centers, and has begun testing robotics for package delivery.
Someday, consumers may see autonomous delivery vans on the streets, robots dropping packages on their doorstep, and drones soaring through the skies. Doing so would likely slash the company’s workforce and substantially expand profit margins. The stock’s price-to-earnings ratio (P/E) of 36 isn’t dirt cheap, but Amazon’s cloud tailwinds alone should help the stock easily outgrow that price tag over the coming years.
AI has immense potential to improve business performance for companies across almost every industry. But there aren’t many companies selling AI software and applications. Two that jump out are C3.ai(NYSE: AI) and Palantir Technologies. AI software can analyze data and identify trends, optimize supply chains, detect fraud, and perform virtually any other task involving data and patterns.
C3.ai isn’t perfect; it’s not yet a profitable company. Meanwhile, Palantir is profitable and is much larger.
So, why is C3.ai the smart buy and not Palantir? All of Wall Street has piled into Palantir stock, sending its valuation to potentially unprecedented heights. There’s a high probability that investing at its current price-to-sales ratio of 108 will not yield good short-term returns.
Last quarter, C3.ai grew its revenue by 25% year over year, compared to Palantir’s 39% growth. However, C3.ai trades at only 8 times sales. Sure, Palantir’s business is performing better, but is it worth paying roughly 12 times that valuation?
Even if C3.ai remains the inferior business, the valuation gap between the two means that it could produce superior returns. Investing isn’t always about holding your nose and buying the popular stocks at any price. A growing company like C3.ai at a compelling valuation makes it a brilliant growth stock to buy instead.
Before you buy stock in Alphabet, consider this:
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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. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Nvidia, and Palantir Technologies. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.
These Are the Smartest Growth Stocks to Invest $1,000 in Today was originally published by The Motley Fool
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