Artificial intelligence (AI) is all the rage these days. Since OpenAI's breakthrough with ChatGPT, companies are racing to cash in on this fast-growing market. Investors can also profit from Wall Street's newest obsession by buying shares of companies that look likely to ride this wave for a while.
Here are two examples: Amazon (NASDAQ: AMZN) and Fiverr (NYSE: FVRR). The former is down big time over the past month, while the latter has been struggling for much longer. However, both could move in the right direction over the long run.
1. Amazon
On Aug. 5, equity markets suffered their worst day in nearly two years. Amazon did not escape the sell-off, although, in fairness, the company's shares were declining even before that. Over the past month, the tech giant's stock is down almost 13% -- a massive dip for a company worth $1.79 trillion. However, in five years, hardly anyone will remember this moment. Amazon should bounce back and still perform well over the long run, partly thanks to its work in AI, which is helping boost its most profitable segment: Amazon Web Services (AWS).
The company's cloud computing-focused arm offers AI products, including Amazon Bedrock, a large language model that allows its clients to build their own generative AI applications. In the second quarter, Amazon's net sales increased by 10% year over year to $148 billion. AWS net sales grew by a much stronger 18.7% year over year to $26.3 billion, partly thanks to the continued adoption of AI. Amazon has also launched AI features for its customers across its other segments, including a shopping assistant called Rufus and an AI-powered playlist generator for Amazon Music customers called Maestro.
Therein lies one of Amazon's greatest strengths: The company isn't just an AI play. Its business is diversified across e-commerce and online advertising, cloud computing, video streaming, music streaming, and grocery shopping. Amazon generates enough cash to pursue brand-new opportunities. The company has tried to break into healthcare for years -- I wouldn't bet against it succeeding. Is Amazon's valuation prohibitively high?
AMZN PE Ratio (Forward) data by YCharts
The average forward price-to-earnings (P/E) for the consumer discretionary industry is 22.9. Still, in my view, Amazon is worth the premium, given its multiple growth opportunities and wide moat from several sources, including the network effect, high switching costs, and a strong brand name. Amazon is one of the best companies to profit from the AI boom, and there are many other reasons to buy the stock.
2. Fiverr
Companies will increasingly need AI experts to avoid getting left behind by their competitors, but many don't have the budget to hire an entire team of specialists.
That's where Fiverr comes in. The company's platform allows businesses to find talented freelancers and contractors across a range of technical industries. An increased demand for AI-related jobs could help lift the company despite the fear that AI could replace many of the professionals on its platform and, thus, have a negative impact on its business. But Fiverr believes that AI's impact has been, and continues to be, a net positive.
True, Fiverr's top-line growth and share price have declined in the past few years as its pandemic-related boom came to a screeching halt.
However, as CEO Micha Kaufman argues, "We are in the early innings of unleashing the full potential of AI in our marketplace, and we believe it'll be a multiyear tailwind for us to drive product innovation and growth." Fiverr won't rely solely on AI, either. The gig economy, which it helps power, is gaining in prominence. And the more people turn to freelance work, the more popular the platform will become since it offers a convenient method for businesses and freelancers to find one another.
Fiverr's network effect should play a role, too. The more that companies use its website to link with talented contractors, the more attractive it becomes to other freelancers. And although there are competing platforms, they can coexist. It only makes sense to advertise one's skills on multiple mediums.
FVRR PE Ratio (Forward) data by YCharts
Further, Fiverr recently acquired AutoDS, a dropshipping specialist, for an undisclosed amount. The transaction expands Fiverr's addressable market in addition to the growing gig economy. Lastly, Fiverr's shares look reasonably valued.
The stock could provide superior returns to patient returns.
Should you invest $1,000 in Amazon right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Prosper Junior Bakiny has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Fiverr International. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
