2 Artificial Intelligence Stocks You Can Buy and Hold for the Next Decade | The Motley Fool (2024)

The adoption of artificial intelligence (AI) promises to add tremendous value to the economy by increasing worker productivity, accelerating product development, and providing a greater variety of services for consumers and businesses. It spells a lucrative opportunity for investors, with Statista projecting the AI market to increase fourfold to $826 billion by 2030.

Here are two profitable AI software companies that should be relatively safe bets for the next 10 years.

1. Palantir Technologies

Palantir Technologies (PLTR 1.95%) is a leading AI software builder that is used by major corporations and the U.S. government. Its latest financial results continue to point to a large opportunity that could deliver handsome returns to shareholders.

After experiencing a slowdown in growth amid macroeconomic headwinds last year, the company is starting to see accelerating revenue again. Revenue grew 27% year over year in the second quarter, driven by balanced growth from commercial deals and the government.

Organizations are spending more money with Palantir because it helps them improve operating efficiency and quicken the time to market with new products, all while keeping their data secure. Palantir distinguishes itself from competitors by targeting projects where it adds the most value, such as expensive and complex projects that other companies are unwilling to tackle.

Palantir is building deep relationships with customers, and this is most evident in its strong growth with the government. In the second quarter, Palantir's U.S. government business grew 8% over the previous quarter and 24% year over year.

Importantly, Palantir is becoming a very profitable business, which is also helping it stand out. Its adjusted free-cash-flow margin relative to revenue has increased from 15% in Q4 2022 to 22% in the most recent quarter.

While there will be winners and losers in the AI market, Palantir's growing revenue and free cash flow show it will be one of the winners.

2. Microsoft

Microsoft (MSFT 0.84%) is the 800-pound gorilla in software, with millions of users who use Windows, Office, and LinkedIn every day, in addition to its cloud service business for enterprise. Its large installed base of users will be valuable as it looks to transform and profit off implementing AI features across the business.

Revenue for Office 365 commercial grew 13% year over year in the June-ending fiscal fourth quarter, driven partly by Copilot for Microsoft 365. The number of people using Copilot for work nearly doubled quarter over quarter.

But AI will also lead to new categories of products that could benefit Microsoft's consumer business over the long term. Microsoft recently unveiled new Copilot+ PCs, which bring several AI enhancements to the user experience.

Wall Street is mostly bullish on Microsoft because of the growth opportunity in the Azure cloud business, which is the second-largest cloud services provider. Revenue from Azure and other cloud services grew 29% year over year last quarter, with AI services contributing 8 percentage points to growth. This contribution from AI is higher than in previous quarters, suggesting Microsoft is gaining momentum in the AI market.

Microsoft will be one of the safest AI stocks to hold for the long term. It is a financial powerhouse with $74 billion in trailing free cash flow on $245 billion of revenue. It has the cash resources to invest in innovative new technologies while delivering growing streams of free cash flow to fuel shareholder returns.