The U.S. stock market has been quite volatile in the past decade. Many trends, including e-commerce, cannabis, blockchain, cryptocurrency, cloud computing, and artificial intelligence (AI), have shaped the investment landscape in this time frame.
However, AI is no passing trend and is rapidly changing the overall face of corporate America. With broad-reaching utility across industries, functions, and various spheres of daily life, this AI revolution's eventual impact is beyond imagination. According to PWC estimates, AI will contribute a mind-boggling $15.7 trillion to the global economy by 2030.
Considering that AI technologies are very much here to stay, astute investors should consider picking up at least small stakes in these soaring AI-powered growth stocks as a part of their long-term investing strategy. Here's why Meta Platforms (NASDAQ: META) and Amazon (NASDAQ: AMZN) fit the bill.
Meta Platforms
The first growth stock to buy with no hesitation is social media giant Meta Platforms. With over 3.2 billion people -- nearly 40% of the global population -- using at least one of the company's apps (Facebook, WhatsApp, Instagram, and Messenger) daily, the company enjoys exceptional user reach and engagement. Not surprisingly, Meta's social media applications are highly sought after by advertisers.
Meta leverages powerful AI-driven algorithms to recommend relevant content, which in turn helps boost user engagement. The company is currently working on a new unified recommendation system to give more relevant and personalized content recommendations to users across its social media applications and content formats. Meta offers multiple AI-powered tools to advertisers to automate and optimize their advertising campaigns.
Increasing user engagement and improved ad targeting are now translating into better ranking, performance, and returns for advertisers -- which directly helps boost business for Meta. In the first quarter, Meta saw the total number of ad impressions and average price per ad grow 20% and 6% year over year, respectively.
Besides strengthening its core digital advertising business, Meta also sees huge potential in monetizing its AI technologies by scaling business messaging, introducing advertisements or paid content in AI assistant interactions, and enabling people to pay for accessing larger AI models.
Meta also reported an impressive surge in profitability in the first quarter, generating $13.8 billion in operating income and $12.4 billion in net income, up 91% and 117%, respectively, on a year-over-year basis.
While the company continues its heavy investments in AI initiatives and the metaverse, it is also returning significant value to shareholders as dividends and share repurchases. In the first quarter, the company paid $1.3 billion in dividends and repurchased $14.6 billion worth of shares. With the share count dropping and profits rising, Meta will generate more earnings per share in the coming quarters.
Meta shares are trading at 30.5 times trailing-12-month earnings, which is higher than its five-year average price-to-earnings (P/E) multiple of 27.4. Despite this, the stock seems a smart long-term pick even at these elevated valuation levels, considering its dominance in the social media and digital advertising industry and its rapidly strengthening position in the AI industry.
Amazon
The second compelling growth pick for retail investors is e-commerce and cloud computing giant Amazon.
Its Amazon Web Services (AWS) cloud computing business has been the company's key profit engine for the past several quarters. AWS generated revenue of $25 billion in the first quarter, up 17% year over year -- an accelerated rate compared to 13.2% year-over-year revenue growth in the previous quarter. AWS also reported operating income of $9.4 billion, up $4.3 billion year over year.
AWS has already reached a $100 billion annual run rate. However, with more than 85% of the global IT spending still associated with on-premise IT infrastructure, there is still much scope for AWS to grow in the coming years.
With a major part of cloud spending optimization initiatives completed, enterprises are now focusing on new projects to migrate on-premise infrastructure to the cloud. AWS customers are also increasingly adopting AI-related services such as custom silicon and compute instances to build proprietary models, Amazon Bedrock for customizing existing large language models, and Amazon Q for AI-powered software development and data analysis.
Amazon is also gearing up to increase capital investments in AWS and generative AI capabilities. Hence, considering the increasing dependence of its diversified customer base on AWS for non-generative AI and generative AI workloads, a broad partner ecosystem, and robust security and operational performance, AWS can continue to be a major growth catalyst for Amazon in the coming years.
The e-commerce giant is focusing on improving profitability in its core retail business by optimizing the U.S. inbound fulfillment network to place inventory closer to customers, consolidating shipments to reduce cost to serve and to improve customer experience, and expanding the network of same-day fulfillment facilities. The company is investing in robotics and automation to streamline and standardize fulfillment processes.
Finally, although a small part of the business, advertising is also emerging as a major profit contributor. The company sees significant scope for growth in areas like sponsored products and streaming TV advertisements.
Considering the many robust growth catalysts, Amazon can be a smart buy now -- especially when it is trading at only 3.3 times trailing-12-month sales.
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. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Meta Platforms. The Motley Fool has a disclosure policy .
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