Motley Fool Stock Advisor, the US flagship newsletter for the Motley Fool, has been rolling again with teaser pitches about their “A.I. Disruption Playbook” investment ideas, and readers have some questions… partly because it’s been a year or so since we covered a similar teaser pitch from them. So let’s see what we can tell you about those “A.I. Disruption Playbook” stocks… and whether there’s any change to their recommendations.

Here’s how recent emails have pitched the “Playbook”…

“5 years from now, you’ll probably wish you’d grabbed these 3 A.I. stocks.

“Here’s a little preview:

“The Sleeping Giant with the Potential to be the #1 A.I. Company in the World: This tech titan has been working on AI for over 20 years, but it seems like many investors haven’t fully realized the edge this company has when it comes to A.I. yet. We think it’s only a matter of time before this sleeping giant wakes up.

“Whispers from the E-Commerce Shadows: Behind its vast online marketplace, this company’s leaps in artificial intelligence promise unmatched logistical advancements and a voice system poised to rule our homes. Its unique, vast datasets are the secret sauce, ensuring it stays an AI frontrunner.

“The Social Butterfly with Grand AI Ambition: While connecting millions daily, this company is diving deep into AI, aiming for computer systems that outperform human perception in seeing, hearing, and language within the next decade. Current efforts personalize user feeds, but upcoming projects hint at hardware innovations from voice-commanded building to universal language translation.”

OK, so those sound a little mysterious… but, sadly, there’s really no change this time around.

The Motley Fool has been pitching most of these stocks in their “A.I. Disruption” pitches for at least five years, and from the evidence I have it looks like two of the three companies teased have been the same since at least 2018, though I don’t know whether they’ve consistently updated the “A.I. Disruption Playbook” special report as time has passed or not (often, the “special reports” are so generic that they go years without being updated). The recommended “A.I. Disruption” stocks were NVIDIA (NVDA), Alphabet (GOOG, GOOGL) and Meta Platforms (META) for several years, but now they’re often “giving away” the ongoing NVIDIA recommendation (perhaps because it’s now the obvious poster child for AI, after a couple booming years). Today the three stocks are…

“Sleeping Giant” = Alphabet (GOOGL, GOOG)
“Whispers from the E-Commerce Shadows” = Amazon (AMZN)
“The Social Butterfly” = Meta Platforms (META)

So no big shock there. Yes, all three of these are big investors in A.I. projects of various sorts, and have been implementing them as part of their core product portfolio for a long time… and in the case of GOOG and AMZN, they’re also big beneficiaries of other companies investing in AI training capacity on their cloud platforms.

And credit to the Fool for picking these and sticking with them, I’m sure those have all been active recommendations in Stock Advisor for many years, since they almost never sell stocks, and it’s no secret that those tech giants have been driving the performance of the U.S. stock market for a very long time, with in some cases some meaningful whipsawing during the COVID pandemic and its aftermath.  Despite the fact that those four companies have been, along with Apple and Microsoft, the primary drivers of the S&P 500 in recent years, they’ve also all provided shareholder returns that beat the S&P 500 over the past five years (though none anywhere near as dramatically as NVIDIA, of course)… that’s the S&P 500 at the bottom, in orange, and NVIDIA in purple…

I don’t know how it works out in the end for them, but I own all of those stocks other than META, which is probably the second-most-attractively valued of the bunch today — I just don’t like the company, so I avoid them, despite the obvious power of all the personal information they can mine to train their own A.I. systems.  All four of those companies, along with Microsoft (and perhaps eventually Apple), are among the most likely leaders of A.I. for the foreseeable future — they have vast swathes of data to train their systems, and huge customer/user bases for distributing their AI products, and, perhaps most importantly, they have ample capital to invest heavily in A.I. projects of all kinds in these days before there’s a real “business plan” for A.I. in many cases, and they can afford to fail a lot, be patient with A.I, and still be profitable and extremely powerful.

That’s arguably “in the price” for a lot of these stocks, at least to some degree, since they’ve been some of the biggest beneficiaries of the AI enthusiasm of the past couple years. NVIDIA is still at an almost unprecedented valuation for a tech hardware company (and more worrisome, the only real potential precedent remains “Cisco in 2000”), but this isn’t the Court of Appeals, precedent doesn’t necessarily mean anything IF NVIDIA keeps posting shockingly excellent revenue growth and saying optimistic things about the future because of the still-surging demand for their latest Blackwell GPUs.  That’s a meaningful IF, of course — no big company has ever traded at this kind of valuation (30X sales, 60X adjusted earnings), but no big company has ever posted this kind of explosive earnings growth, either, so the future is extremely uncertain.

The others are not growing anywhere near as fast as NVIDIA right now, but they’re much easier for me to stomach on the valuation front, even if they’re not all “cheap” after some AI-fueled multiple expansion and pretty solid operating results.  Alphabet (GOOGL, GOOG) is the cheapest on an earnings basis these days, probably mostly because everyone’s worried about the various antitrust cases against them around the world… and because Alphabet, like the other big tech companies, is spending like a drunken sailor in trying to ramp up its data center capacity for all their new AI projects and customers.

Valuations are richer these days, but it’s still hard to argue with Alphabet as a core position — you get significant exposure to whatever the AI mania becomes, with $100 billion in cash on the books to balance the surge in capital spending, but you also get a dominant advertising business that has proven its value year after year, even though it also might make the business a little more cyclical, you get the biggest video platform in the world (YouTube and YouTubeTV), and the most advanced Robo-taxi business (Waymo)… and this cash-gushing company also recently started to pay a dividend, buys back enough stock to make up for their stock-based compensation (and then some), and is trading at roughly the average forward PE for the S&P 500 these days (~20-22X earnings) — buying a well-above-average company at an average price tends to work out well over time.   And though I’ve owned Alphabet since 2005, I actually added to my GOOGL holdings last month, for the first time in a long time (Irregulars can always see my latest “preferred buy” levels in the Real Money Portfolio)

When it comes to Amazon, the valuation is almost never as obviously appealing, because they reinvest essentially all of their cash flow into improving their global fulfillment network for e-commerce and their global data center network that powers AWS, which is still the leading cloud platform after essentially inventing that business 20 years ago.   Investors sometimes get a bit nervous about the big investments they’re making into expanding AWS capacity, largely for AI, so there’s often a volatile reaction to each earnings report, but the sentiment has been optimistic recently, as the stock nears its all-time highs… and the potential is always there, because of the high top-line growth and their ability to control costs, to report extreme earnings growth at any time they really want to — though they might also turn around the next day and offer up pessimistic guidance that flattens the shares, too.  I still think Amazon is buyable, for long-term investors, up to about 20X cash flow from operations, and that would be just above $2.1 trillion, so we’re nudging up close to that valuation right now (I don’t use “earnings” because that number has never told us much about this particular company’s growth or potential)  — you just have to be willing to be very patient with this firm that has the infrastructure and the long-term focus to dominate so many markets.

And yes, Meta (META) makes my skin crawl a little, as a consumer, and I don’t like the unpredictable priorities of Mark Zuckerberg (remember that plan to spend tens of billions of dollars on the stupid “metaverse”?), so I generally avoid it, not so different from my tendency to avoid buying tobacco stocks, regardless of their financial attractiveness… but I do still pay a little attention to the company as a market leader in AI and social media and advertising.  The stock has rebounded strongly from the “way too cheap” levels of a couple year ago, but it’s still at least rationally priced — their ad revenue growth has been better than Google’s in recent years, and they’ll probably continue to be more volatile, but, like the others in this group, they can also afford to waste a lot of money. META is valued at about 27X forward earnings these days, is near all-time highs, and will probably continue to grow its earnings at an average clip of 15-20% in future years, so that’s a pretty easy valuation to accept.

Valuations are historically elevated for the market as a whole, and that could obviously change — we could see a market crash that brings all the big leaders down to discounted valuations, and the whole market could reset to lower multiples, which is likely at some point, and Alphabet, Amazon and Meta would probably not be immune to a re-rating of the broader market.  Regardless of what feels normal right now, we should always remember that Apple, which today is growing slowly but trades at 30-35X earnings, mostly traded in range of 10-15X earnings from 2012-2017, at a time when iPhone growth was phenomenal and their emerging market dominance was clear, but the earnings growth was lumpy, with some weaker years — what seems normal in one era can seem nutty in another, and that sentiment change is unpredictable in the moment).

I wouldn’t argue with buying any of those three big tech leaders, though Alphabet would still be the easiest buy in my book, at current valuations — if you’re looking to own a position for 5-10 years or more, it’s hard to come up with many companies who are better positioned to handle whatever the world throws at them.

Disclosure: Of the companies mentioned above, I own shares of Alphabet, Amazon and NVIDIA. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.