3 AI stocks to buy and hold for the next decade

Work in artificial intelligence (AI) has accelerated over the past decade and is now part of our daily life. Companies across many industries are rushing to embrace AI to improve operations and customer experience, or to make sense of the massive amounts of data available. We asked three Motley Fool contributors to highlight a company making advancements in AI that would be worth buying and keeping for the next decade. They have chosen Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), Etsy (NASDAQ: ETSY), and Zebra Technologies (NASDAQ: ZBRA).

Alphabet: an AI pioneer

Danny Vena (Alphabet): No list of AI innovators would be complete without Alphabet. AI has been around for decades, but in 2011 Google began its pioneering work in deep learning with the Google Brain. Andrew Ng, an AI researcher and assistant professor at Stanford, has collaborated with scientists at Google, and the rest, as they say, is history.

The first major breakthrough came in 2012 when the self-taught AI system learned to recognize cats from 10 million images pulled from YouTube videos. It might sound frivolous by today’s standards, but it paved the way for significant advancements in visual and voice recognition, which are now staple technologies powering smartphones.

Google doubled down on AI with its $ 400 million acquisition of DeepMind in 2014. The company developed a system that could defeat the world’s best players in the ancient Chinese game of Go, which is universally recognized as one of the most sophisticated and difficult games to Master.

There are also a growing number of applications in the medical field. Google AI was able to detect signs of diabetic retinopathy in eye scans with 90% accuracy and outperformed radiologists in identifying breast cancer in mammograms.

Not to mention Waymo, Alphabet’s self-driving car segment. The system, which was developed in 2009, is considered one of the most advanced autonomous vehicle systems in the world. Waymo vehicles have been driving the streets of suburban Phoenix for years, and their vehicles have not needed a driver since last year. He also tests his mettle in San Francisco and Mountain View, California. The company plans to expand its robotaxi service, while considering the idea of ​​leasing its system to car manufacturers.

So what does all this mean? Because it’s still early days for AI and there are so many potential applications, it’s hard to quantify just how much Google’s AI technology could be worth to Alphabet. Waymo’s autonomous driving technology alone could be worth billions of dollars, but estimates vary widely. In 2018, Waymo was valued at $ 175 billion, although recent funding rounds valued the unit at a more modest $ 30 billion.

Internally, however, Alphabet is getting its money’s worth thanks to Google’s AI. The technology helps make Google Maps, News and Assistant smarter, and allows Google Translate to increase the accuracy of its translations. Perhaps more importantly, however, it helps improve the accuracy of Google’s flagship search and digital advertising, which ends up paying the bills.

Alphabet’s second quarter revenue of $ 61.88 billion jumped 62% year-over-year, although that was in part due to easier lineups. This helped push earnings per share to $ 27.26, up 169%.

It would be almost impossible to determine exactly what this AI is worth to investors. That said, given its dominance in digital research and advertising and its early and continued investments in AI, it’s easy to see why Alphabet should be a key AI stock to buy and hold for a decade.

Etsy: Using AI for a Better Customer Experience

Will Healy (Etsy): Describing Etsy as a community of sellers with crafts, craft supplies, and vintage goods doesn’t seem like an AI business at first glance. However, its 5.2 million active sellers and 90 million active buyers rely heavily on artificial intelligence to find themselves. To facilitate its AI capabilities, Etsy has migrated to Alphabet‘s (NASDAQ: GOOGL) (NASDAQ: GOOG) Google Cloud early 2020

Additionally, during Etsy’s Q1 2021 earnings call, CEO Josh Silverman spoke about the focus on multivariate models powered by machine learning. It involves collecting data to provide more personalized search results. Silverman wants machine learning to refine these results with such precision that “Etsy really feels right for you.”

Despite these efforts, investors sold the stock after the release of its second quarter results. Revenue increased 23% to $ 529 million in the second quarter. Net income rose only 2% year-over-year in the second quarter to $ 98 million, with an increase in operating expenses of 47% nearly nullifying a tax benefit of $ 12.5 million. With no forecast for 2021 and just 14% year-over-year revenue growth forecast for the third quarter, investors sold the stock.

Still, the first six months of 2021 generated revenue of $ 242 million, which is 122% more than the first two quarters of 2020. In addition, Etsy’s stock rose nearly 40% over the course of last 12 months despite trading 30% lower than its 2021 high. Additionally, the P / E ratio of 50 brings the earnings multiple close to all-time lows. This could present an opportunity to buy successful AI stocks at a big discount.

Zebra: going beyond the barcode

Brian withers (Zebra Technologies): Those familiar with Zebra Technologies probably know it for its barcode printers and scanners, but the company is reaching beyond its roots into exciting new areas. CEO Anders Gustafsson explains this new direction as the Enterprise Asset Intelligence vision. This effort focuses on products and solutions that “sense”, “analyze” and “act”. For Zebra customers who manufacture, distribute or sell goods, these three functions are extremely important for the tracking and management of their assets.

Over the past few years, Zebra has enhanced its line of products and solutions in line with this vision by making a number of key smart technology acquisitions. These key purchases have brought additional capabilities in-house, such as robotics, AI, computer vision (a subset of AI) and machine learning (a branch of AI).

Data source: Crunchbase and company press releases.

As Zebra seeks to deepen its ties with the manufacturing and distribution sectors, its two most recent acquisitions are critical catalysts. On the latest earnings conference call, Gustafsson said its M&A activity will allow it to enter “new markets to digitize and automate workflows.” As its customers’ processes become more and more complex, artificial intelligence will be an essential part of making all of these smart technologies work together.

The company already has a full range of well-known products and grows its business easily. In the last quarter, the company saw a 44% growth in revenue and its profits grew even faster at a triple-digit rate year-over-year. Its balance sheet is a little in debt with $ 338 million in cash and cash equivalents versus $ 996 million in debt, but its cash flow is excellent. In the first half of the year, Zebra generated strong operating cash flow of $ 539 million.

Zebra has one foothold in the present with a growing business that is essential for customers today, and one foothold in the future with its Enterprise Asset Intelligence vision, intelligent acquisition strategy and use of the artificial intelligence to make it all work together. Over the past decade, the share of this industrial equipment specialist has increased by more than 1,500% for shareholders. The next decade may not be so lucrative for investors, but it is likely that this winner will continue to win. Interested investors would do well to buy a few stocks today and hold them until at least 2031.