Key Points
Long-term investing isn’t about chasing trends; it’s about finding quality businesses that can compound over time. This holds true even in today’s era of artificial intelligence (AI). AI is changing the business landscape, and the companies that best adapt and use AI to their advantage will likely be the biggest winners over the next decade.
Meta Platforms (NASDAQ: META) and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) are two of the best-positioned companies in this regard. They both have built-in advantages that should help them continue to compound over time.
Missed AI’s “Act 1”? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
Here’s why these two growth stocks should return sensational results over the next decade.
Image source: Getty Images.
1. Meta Platforms
Few companies have been able to use AI to drive growth in their core business, as Meta has. In fact, renowned investor Bill Ackman has called Meta “one of the clearest beneficiaries of AI.”
Meta arguably has the best digital advertising platform on the planet, and it is set to soon surpass Alphabet for the No. 1 spot. AI is making Meta even more powerful. The company is fueling higher user engagement by using AI to improve its content recommendation algorithm.
At the same time, Meta is seeing better ad monetization, as the AI tools it is providing advertisers are improving targeting and conversions. This is leading to increased ad loads and higher ad prices, fueling revenue growth.
Meta also has huge potential with AI agents. The company recently introduced its new Muse AI agents, which can perform a variety of tasks for users, including making appointments, planning and booking trips, and shopping on a user’s behalf. This opens up a whole new, large potential revenue stream for the company.
While it will have paid tiers for power users, the biggest revenue opportunity will come from affiliate and transaction fees. It will also give the company a significant opportunity to automate and monetize Facebook Marketplace, as Muse agents can find products, negotiate prices, and even arrange pickup times.
With 3.6 billion daily active users and a strong AI flywheel, Meta’s business is poised to continue compounding at a strong clip over the next decade.
2. Alphabet
Alphabet is a favorite of legendary investor Warren Buffett, who is a huge advocate of compounding businesses. Its advantage is its most complete AI stack and a large distribution edge.
Alphabet’s core business remains Google Search, although that has morphed into search/discovery with AI. The company holds a dominant position in this area due to three distinct advantages.
The biggest is distribution, as Google has become the gateway to the internet through its ownership of the Chrome browser, Android smartphone operating system, and a revenue-sharing deal with Apple to be the default search engine on its devices.
Meanwhile, Alphabet’s two-sided ad network is one of the most powerful in the world, capable of handling campaigns from small local merchants to global powerhouses. Finally, the wealth of data the company has collected over the years is unmatched. Meanwhile, it is now using its Gemini models to power AI tools and features to help drive query and revenue growth.
Alphabet’s biggest edge, though, is its custom AI chips called Tensor Processing Units (TPUs). The company developed these chips more than 10 years ago and has built its entire hardware and software stack around them. This gives Alphabet a huge cost advantage, saving it both in training its own models and in running AI inference. It also gets payback on its AI infrastructure investments in half the time as with GPUs, bringing it down to less than a year. Alphabet has even started selling TPUs directly to Anthropic, opening up another revenue stream.
With the most complete AI stack and built-in advantages, Alphabet has a durable, compounding business set to outperform over the next decade.
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Geoffrey Seiler has positions in Alphabet and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Apple, and Meta Platforms. The Motley Fool has a disclosure policy.
