Monday, 6 May 2024
by BD Banks
Long-term investing isn’t about thinking in weeks, months, or even next year. It’s about thinking about businesses that could shape the world several years, sometimes decades, into the future. Artificial intelligence (AI) is here; the world likely hasn’t even sniffed AI’s long-term potential yet.
So, when thinking about which companies today are poised to make the most significant difference in the future, a few winners come to mind: Arm Holdings (NASDAQ: ARM), Tesla (NASDAQ: TSLA), and Meta Platforms (NASDAQ: META).
Each is already positioned at the top of their respective industries and can push AI to new frontiers. Over the long run, massive growth opportunities could reward shareholders for decades.
The best part? You can become a shareholder of each company for a total of just $715.
Here is the investment pitch for each:
Arm Holdings is an exceptional company in the semiconductor space. The company designs blueprints that companies like Apple, AMD, Nvidia, Qualcomm, and others use to design processor chips for their applications. Arm-based chips are found worldwide in smartphones, vehicles, appliances, factories, and more. Arm’s designs are behind roughly half the world’s processor chips.
The company makes money on royalties and licensing fees, making it a very profitable business where research and development are its primary expenses. The business has a whopping 97% gross-profit margin. Arm’s $2.9 billion in revenue over the past year created $762 million in free cash flow, profits that ARM can spend at its discretion or send to the balance sheet as cash. Today, the business has $2.4 billion in cash and zero debt.
Long-term investors can feel good about Arm’s strong finances and future growth opportunities. AI, autonomous driving, cloud computing, and consumers in developing markets who start using smartphones and other modern luxuries should all drive chip demand. Given its massive market share, Arm will undoubtedly grow on these tailwinds. That makes this stock a long-term winner investors can buy and hold confidently.
Tesla stock has tumbled from its former high as Wall Street debates whether this is a car company or something more. CEO Elon Musk is betting heavily on the latter. He recently announced that Tesla would be investing $10 billion this year to build out Tesla’s AI capabilities, focusing the most on its full self-driving technology (FSD). Autonomous driving has long been Tesla’s ambition, and it seems that version 12 of its software marked a leap forward due to AI advancements Tesla implemented.
The potential market for FSD is enormous. Robotaxis are a nascent market today, but estimates from Fortune Business Insights paint it as a $118 billion market opportunity by 2031. Elon Musk has even publicly stated that Tesla’s long-term value depends heavily on the company’s success in autonomous driving.
Investors will need to monitor FSD’s developments, but there is more to Tesla than Elon is letting on. Tesla is a leader in electric vehicle (EV) technology and possesses a growing energy business with long-term potential on its merit. It’s hard not to see Tesla growing as these irons in the fire mature over the coming years.
Meta Platforms isn’t a story filled with many “what ifs” about its future. Today, Meta is already a dominant business. Its social media apps, Facebook, Instagram, Threads, and WhatsApp, have over 3 billion daily active users. The company making money is as simple as selling ads to the billions of eyeballs that scan an app home screen daily.
It’s a lucrative business that generates $50 billion in free cash flow and $142 billion in annual revenue. That’s a lot of cash for a company to spend. Meta has padded its balance sheet, building a $32 billion cash hoard. It recently initiated a dividend and is known for massive share repurchases that help drive earnings-per-share (EPS) and Meta’s stock price higher. The global population is growing, and Meta is still increasing active users.
AI is helping advertisers optimize their ad campaigns on Meta’s apps, and Meta has begun rolling out AI models to enhance the user experience on its apps. Don’t forget about Meta’s wildcard in Reality Labs, which Meta is betting tens of billions of dollars on to develop cutting-edge AI technology that CEO Mark Zuckerberg can deploy in several ways. It’s hard to invest in AI’s long-term potential and leave Meta Platforms off your list.
Before you buy stock in Arm Holdings, consider this:
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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. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Meta Platforms, Nvidia, Qualcomm, and Tesla. The Motley Fool has a disclosure policy.