Finding stocks to buy and hold forever is no easy task. The investments need to be able to adapt to new trends yet not be so swayed by a single trend that it risks disrupting the core business. While artificial intelligence (AI) has the potential to disrupt a lot of businesses, I think these three have a solid way to capitalize on the AI build-out while also deploying AI themselves.
Microsoft (MSFT 1.87%), Amazon (AMZN 2.47%), and Alphabet (GOOG 1.00%) (GOOGL 1.00%) are each top candidates for stocks to buy now and hold forever, and each of them has a common theme.
Image source: Getty Images.
Cloud computing is allowing each of these businesses to capitalize on AI
At first glance, you might think this trio has little in common outside of being some of the largest companies in the world. Microsoft runs a software business that specializes in enterprise products; Amazon operates an e-commerce store; and Alphabet owns Google, which is an advertising powerhouse. However, all three of these companies also own thriving cloud computing businesses.
Cloud computing is a fairly simple concept. Companies like Microsoft, Amazon, and Alphabet build excess computing power, then they rent out the usage of that computing power to clients.
This is a win-win for all involved. The clients don’t have to spend money on expensive computing equipment that goes out of date and can fail. Furthermore, they can easily scale up or down usage as necessary. The cloud computing unit providers benefit from having a huge scale and can easily cycle computing units in and out as they become damaged and fail. Because their cost to operate these data centers is far less than the money they make from renting them out, they’re huge profit drivers for the companies.
Today’s Change
(-1.00%) $-3.12
Current Price
$307.80
Key Data Points
Market Cap
$3.7T
Day’s Range
$306.93 – $312.48
52wk Range
$140.53 – $349.00
Volume
3.8K
Avg Vol
33M
Gross Margin
59.68%
Dividend Yield
0.27%
Demand for cloud computing has skyrocketed as AI has developed. None of the AI start-ups have access to data centers filled with all of the chips necessary to create the impressive AI models we know today. Instead of building a data center, which is time consuming, requires specialized knowledge, and is expensive, these companies are just renting the computing power from cloud giants like these three. As AI becomes more and more prevalent, the usage will rise, causing them to spend more with the cloud computing providers.
Microsoft, Alphabet, and Amazon are all spending big money to build out their computing footprint, but that’s because they see obvious demand. If they can lock up long-term usage revenue that is expected to grow, then they will secure massive cash flows for years down the road. This is why these three are spending so much, and I think it’s what needs to be done to keep this region relevant in the future, making them great stocks to buy now and hold forever.
Today’s Change
(-1.87%) $-7.48
Current Price
$391.93
Key Data Points
Market Cap
$2.9T
Day’s Range
$391.00 – $398.00
52wk Range
$344.79 – $555.45
Volume
2.6K
Avg Vol
34M
Gross Margin
68.59%
Dividend Yield
0.89%
But what kind of effect is cloud computing having on their base business?
Most of Amazon’s profits come from the cloud
Amazon’s business is by far the most exposed to the cloud because its primary commerce business has low margins. In the fourth quarter (Q4), Amazon Web Services (AWS) generated 50% of Amazon’s operating profits. In Q3, it was even higher at 66%. AWS is a huge part of Amazon’s business, and its importance cannot be understated.
Today’s Change
(-2.47%) $-5.32
Current Price
$209.88
Key Data Points
Market Cap
$2.3T
Day’s Range
$208.83 – $215.12
52wk Range
$161.38 – $258.60
Volume
9.3K
Avg Vol
49M
Gross Margin
50.29%
Google Cloud is Alphabet’s fastest-growing division, rising 48% year over year. That’s huge growth and justifies why Alphabet is spending so much on its data center footprint.
Last is Microsoft Azure, a business that’s relatively hidden in Microsoft’s business. Unlike Alphabet or Amazon, Microsoft doesn’t break out the amount Azure generates or its operating profits. The only fact we know is its growth rate, which was an impressive 39% during the quarter. Azure is a huge part of Microsoft’s business. Although investors don’t know its exact share, it’s pretty obvious that this is Microsoft’s biggest cash cow by how much it’s spending to expand its Azure capabilities.
