Artificial intelligence (AI) stocks have driven the S&P 500 higher over the past three years and helped the bull market roar to multiple new record highs. You may recognize the names of some of the winners leading the way, from AI chip leader Nvidia (NVDA 1.44%) to AI software company Palantir Technologies. (They each saw their shares climb 1,000% and 2,400%, respectively, over three years.)

Why such excitement about AI? The technology has what it takes to help companies and individuals gain efficiency, and it paves the way to faster and stronger innovation. The possibilities are endless — from powering autonomous vehicles and robots to improving the drug discovery process. And those are just a few examples.

For companies developing or using AI, all of this may translate into cost savings as well as explosive earnings growth. Investors were quick to hop on this train in recent years — but is AI still the best growth theme for long-term investors? Let’s find out.

Image source: Getty Images.

The AI story so far

First, let’s consider what’s happened so far. Certain companies already have seen both earnings and stock performance take off thanks to their positions in the AI market. I mentioned Nvidia and Palantir earlier for their share price gains, and these have been accompanied by soaring earnings, too. Early AI winners, like Nvidia, have powered the development of AI tools, or, like Palantir, have helped customers apply AI to their real-world problems.

Nvidia

Today’s Change

(-1.44%) $-2.67

Current Price

$183.14

But this doesn’t mean the AI opportunity is over. Companies continue to train AI models, and cloud service providers are investing to increase capacity. In fact, Nvidia chief Jensen Huang says he expects AI infrastructure spending to reach as much as $4 trillion just a few years from now. This preparation of infrastructure suggests we’re still in the early stages of the AI story.

The need for compute

Next, we should see broader use of AI by various companies throughout industries. (For example, many pharma and biotech companies have started to use AI to guide the discovery of new drugs, but this movement is still in its early days.) During this stage, we should see an ongoing need for compute to power the thinking process models go through to solve complex problems. This area, called AI inference, requires chips, networking equipment, and other tools that should continue to drive growth for companies like Nvidia, Advanced Micro Devices, and Taiwan Semiconductor Manufacturing, to name a few.

And companies that use AI also should benefit from the technology, as I mentioned above. Market growth forecasts support this, with expectations for today’s billion-dollar AI market to increase, reaching into the trillions by the end of the decade.

All of this means that AI is on track to power revenue growth across industries in the years to come — and this makes AI the best growth theme for long-term investors even after the spectacular performance of AI stocks in recent years.