The 3 Best Stocks to Buy and Hold for the Next Stage of the Artificial Intelligence (AI) Revolution

Will Healy (Alphabet): In the race for AI leadership, investors seem to have written off industry pioneer Alphabet.

Indeed, many analysts and investors questioned the market leadership of the Google parent after the functionality of OpenAI’s GPT-4o became known to the public. Some appeared to doubt the future of Google Search amid AI advancements, and the release of the generative AI platform Google Gemini did not necessarily ease those concerns.

Still, DeepSeek’s breakthrough could finally serve as the opportunity Alphabet needs to build a competitive advantage, setting it up to prosper in this next stage of AI development. Lower-cost AI should increase usage of the company’s AI services and products, which should bode well for the company as it seeks to succeed in this burgeoning industry.

To that end, Alphabet is now betting its vast resources on a recovery. The company pledged to spend $75 billion in capital expenditures (capex) in 2025, most of which it will likely devote to AI-related spending. While some may perceive that as a sign of desperation, competitors such as Amazon and Meta Platforms also have spent comparable sums on capex.

Moreover, Alphabet can likely afford this. In addition to its $96 billion in liquidity, the company generated nearly $73 billion in free cash flow in 2024, which does not include capex. Also, the nearly $53 billion it spent on capex in 2024 indicates Alphabet can still generate massive free cash flows even with that added investment.

Alphabet stock has risen by almost 25% over the last year. So, while it has not performed as well as some peers, the stock remains in growth mode.

Finally, with a P/E ratio of 23, it is the lowest-cost stock in the “Magnificent Seven.” This means it could offer growth stock returns at a reasonable price as it ups its competitive game in this new AI realm.

Justin Pope (Apple): Artificial intelligence is steadily entering its next phase. While AI hyperscalers continue to spend billions of dollars on chips and other hardware, the focus may soon shift to AI platforms and applications that bring the technology to consumers and businesses. I think Apple will be a massive long-term winner here.

The company is famous for its sticky ecosystem, which includes the iPhone, wearable accessories, tablets, and computers. Thanks to software that seamlessly ties everything together, the user experience is buttery smooth. As of earlier this year, Apple had approximately 2.35 billion active iOS devices worldwide. Its massive footprint gives Apple an inside track to capture market share in consumer-facing AI.

You’ve already seen the earliest iteration of Apple Intelligence, a package of generative AI features Apple introduced through software updates in its newest devices. Thus far, Apple Intelligence reportedly failed to make a great first impression with iOS users. However, it’s incredibly early. A full rollout will take several years as iOS users upgrade to AI-capable devices, allowing Apple to experiment and improve Apple Intelligence.

The stock trades at a price-to-earnings ratio over 31, which some may argue is expensive for a company trying to reignite growth. However, assuming Apple succeeds in AI, the stock should be fine over the long term. Analysts estimate Apple will grow earnings by an average of almost 14% annually over the next three to five years.

Unless a competitor emerges and eats into Apple’s vast user base, it seems appropriate to give the company the benefit of the doubt. Apple remains a world-class company that generated nearly $100 billion in free cash flow over the past four quarters alone. Until proven otherwise, Apple is on top of the consumer mountain, making it arguably the most obvious consumer-facing AI stock you can comfortably buy and hold for the next five to 10 years.

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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. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, 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. Jake Lerch has positions in Alphabet, Amazon, CrowdStrike, and Nvidia. Justin Pope has no position in any of the stocks mentioned. Will Healy has positions in CrowdStrike. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, CrowdStrike, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.

The 3 Best Stocks to Buy and Hold for the Next Stage of the Artificial Intelligence (AI) Revolution was originally published by The Motley Fool