Here's how I can find stocks to buy to ride the AI ​​wave in the next 20 years

Back in 1999, when people wanted to find stocks to buy that might benefit from the power of the Internet, many of them put their money in almost any share that even mentioned the Internet in the press release.

At the time, many analysts were calling it a bubble. There is no way Amazon it costs more than $5 a share, they say: it will collapse.

They were right – fast forward a few years and Amazon stock was selling for pennies.

Fast forward a few decadesand, well… no need to rub it in if, like me, you didn't buy and hold Amazon shares.

AI: does history repeat itself?

A few decades may sound like a long time to wait.

As a long-term investor, I see that this is where the big money is made. As the late Charlie Munger said, “big money is not in buying and selling, but in waiting“.

There is currently a lot of talk about whether AI-themed investing is a stock market bubble. You can share as you like Nvidia (NASDAQ: NVDA) indeed worth the more than 2,700% share price increase it has seen in the past five years?

Perhaps, as in 1999, looking at each stock and making fun of its share price is not the best way to get rich.

What if, while many companies fall by the wayside, AI moves the way the Internet did: it goes from an idea to a profitable business environment, and some companies do very well in it?

Picking the winners

Back to the question of which stocks to buy – and when?

It's easy to get swept up in a fog of excitement as a new investment theme emerges. But investing is investing. Some ground rules are important, I think.

Long term, Nvidia is the kind of AI I'd happily own.

Why? In panning for gold, the old saying goes that a man who makes money sells shovels. For Nvidia to do well, one version of AI doesn't need to prove itself over another, as it does for some end users of its products. Instead, as companies invest in AI capabilities, companies like Nvidia that provide the backbone of the technology should see strong sales.

This is the case with various chip makers. But I like Nvidia more than most because it has already proven its business. In its most recent quarter, the company's revenue was $30bn, more than that twice same quarter last year. Total revenue was a whopping $16.6bn.

Of course, Nvidia faces challenges, from the uncertain release of AI beyond the initial excitement, to more sophisticated competitors trying to eat breakfast.

On top of that, its current valuation and $2.9trn market capitalization seems excessive to me (as did Amazon in 1999).

But if the valuation makes more sense, Nvidia will be at the top of my list of stocks to buy to try to help my portfolio benefit from AI's long-term prospects.

My approach is to select proven, profitable companies with competitive valuations and benefits and then wait for an attractive share price to buy.