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Some call AI a \u201crevolution<\/a>\u201d akin to the development of the internet, or a modern-day \u201cgold rush<\/a>\u201d with potential to boost productivity and corporate earnings. But others have labeled the technology nothing more than a \u201cnarrative\u201d that investors are clinging to as stocks climb ever higher, a justification for unwarranted price appreciation. Fortune 500 companies have spent billions<\/a> on AI, but so far, there\u2019s been little economic data to prove any productivity-enhancing abilities.\u00a0<\/p>\n Still, most experts agree that those benefits will come\u2014it\u2019s just a matter of when. And some companies are already making a killing from the AI boom, according to Erika Klauer, a technology equity portfolio manager at Jennison Associates, an investment management firm with $194 billion in assets under management. \u201cAI is proving to be worth the investment for many industries,\u201d she told Fortune<\/em>. \u201cIt\u2019s an extraordinary opportunity.\u201d<\/p>\n Klauer and Jennison, which focuses on long-term bets on companies with serious growth potential, have leaned into the AI boom, gobbling up shares of the semiconductor giant Nvidia<\/a>. As Mark Baribeau, head of global equity at the firm, told Fortune<\/em> late last year: \u201cWith generative artificial intelligence, we\u2019re entering the fourth era of computing. And the most important company in the fourth era of computing will be Nvidia.\u201d<\/p>\n At the time, Baribeau highlighted Nvidia as his top stock pick<\/a> for 2024, and it\u2019s since surged over 80%. For Klauer, even after the AI boom of the past few years, there are a few key sectors that will continue to drive growth for AI-linked stocks like Nvidia. \u201dThere are probably two most important new markets that are able to monetize the investment required for AI, and those are healthcare and sovereigns,\u201d she said.<\/p>\n Klauer highlighted medical imaging, genomics, and drug discovery<\/a> as three areas in the healthcare sector that are already creating \u201cmuch higher demand for AI services than was previously expected.\u201d But it\u2019s the desire among nation-states to develop their own AI systems that Klauer believes will really drive growth for a few key AI companies.<\/p>\n \u201cOn the sovereign side, you have countries who do not want to have their models trained on U.S. norms and customs. They would like to have their own version of ChatGPT, with training on their own languages\u2026their own archives, their own cultural nuances,\u201d she said. \u201cAnd so those governments are coming to search out their own AI initiatives\u2014and that is an extraordinary opportunity.\u201d<\/p>\n Klauer explained that she\u2019s so bullish on nation-states\u2019 desire to get into the AI game because it\u2019s not something that is driven or impacted by the state of the economy. This AI spending will come \u201cmore from a social and national security perspective,\u201d she said, and that means stable, long-term growth.<\/p>\n All of the companies that Klauer believes will thrive over the next decade are firms that can take advantage of the key healthcare and sovereign growth areas by providing the chips, chip-making equipment, and data centers where AI is run. They may not be cheap, but good things rarely are.\u00a0<\/p>\n So for investors with a long-term outlook, these are Klauer\u2019s top three AI stocks for the next decade:<\/p>\n The first company Klauer highlighted was the semiconductor equipment giant ASM Lithography. You\u2019ve probably never heard of the $402 billion market-cap company, but you\u2019re also most likely unknowingly using their technology right now. ASM Lithography makes the equipment, including lithography machines, integrated circuits, and more, that enable other companies to create semiconductors.<\/p>\n All of the world\u2019s most advanced foundries\u2014the factories that produce semiconductors\u2014currently use ASM Lithography\u2019s technology, including Taiwan Semiconductor (TSMC), Samsung<\/a>, and Intel<\/a>. And with companies releasing new AI chips every year to handle new generative-AI systems, Klauer said semiconductor equipment is going to become increasingly sophisticated, which should benefit incumbent firms like ASM Lithography.<\/p>\n The company has a Warren Buffett-style moat, she argued. Berkshire Hathaway\u2019s Buffett has famously argued that great business models often have significant barriers to entry, or moats, that prevent competition from coming in and ruining the party. Klauer said ASM Lithography\u2019s moat is the technology that allows it to lay down layers of transistors necessary for semiconductors to function.<\/p>\n \u201cASM Lithography is the one that is able to take the pictures or lay down the transistors that are 1\/100th, 1\/1000th, or 1\/5000th the width of a human hair,\u201d she explained. \u201cIt\u2019s an extremely complex optics core competency, that is basically a market that ASM Lithography has dominated for many years. And as the chips are becoming more complex, this plays into their strength as a technology leader\u2014and it also manifests in higher pricing.\u201d<\/p>\n The semiconductor giant Nvidia is Klauer\u2019s second top AI stock for the next decade. After surging 1,743% over the past five years, some investors are beginning to question whether the semiconductor giant Nvidia can continue its run, but Klauer and Jennison Associates are still believers.\u00a0<\/p>\n \u201cAt Jennison, we do always take a long-term view. And we tend to stick with the companies that we think can execute, gain, share, hold or increase their pricing and innovate to expand the market over time. And there are many companies that fit that bill, but Nvidia is literally at the top of that list,\u201d she said.<\/p>\n Klauer highlighted growth opportunities in software, autonomous vehicles, robotics, augmented reality, and gaming over the next decade. She also noted Nvidia has already managed to take advantage of the healthcare industry\u2019s push into AI. The company turned in healthcare revenues of over $1 billion in its fiscal year 2024, three years ahead of their old target.\u00a0<\/p>\n \u201cSo I think Nvidia is really well positioned from a revenue growth perspective, margin perspective, the depth of the management team is superb, the depth of the bench is superb,\u201d Klauer added. \u201cAnd the company is appropriately run as far as from a balance sheet and operational control perspective, too, so certainly, Nvidia is at the top of that list.\u201d<\/p>\n Microsoft<\/a> is Klauer\u2019s final top AI stock for the next decade, but it isn\u2019t the company\u2019s investment in the now famous AI startup OpenAI that has her feeling bullish. Microsoft\u2019s cloud computing platform Azure is the real draw.\u00a0<\/p>\n Azure has been taking market share from its rival Amazon<\/a> Web Services for years now. And in the final quarter of last year, Azure\u2019s revenue surged 30% from a year ago, while AWS saw only 13% year-over-year growth. Klauer expects this rapid growth to continue amid the AI boom. Microsoft is set to provide \u201cthe essential backbone\u201d for what Klauer calls \u201cAI factories\u201d over the coming decade.\u00a0<\/p>\n \u201cRight now, we still have maybe 20% of all workloads accelerated inside the data center. And not only are we probably going to get to 100%, but the net number of workloads is going to inflect positively because there\u2019s so many different reasons why you want to create new workloads to be accelerated because of their utility across so many different industries,\u201d she said.<\/p>\n\nASM Lithography<\/h2>\n
Nvidia<\/h2>\n
Microsoft<\/h2>\n
Honorable mention: Broadcom<\/h2>\n