AI’s market is a vast growth prospect, set to exceed $1 trillion in AI software and system spending. However, investing wisely is crucial for long-term gains. This has led to the rise of AI stocks to buy.
With eased inflation, strong growth, and AI excitement, investor sentiment improves. S&P 500 nears record high, signaling potential bull market, fueled by AI momentum. Generative AI could boost the global economy by $7 trillion, benefiting various companies, including these three value-generating stocks.
So here are the best AI stocks to buy.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) possesses a unique edge in AI due to the widespread usage of Windows and Office. As AI reshapes industries, Microsoft’s established software foundation makes it a consumer and business AI leader. Analysts predict a $100 billion AI-driven revenue surge in four years, mirroring past growth.
Demand for Microsoft 365 apps, boosted by AI-powered text tools like Copilot, is anticipated. With 70% of employees wanting AI integration, Microsoft’s new offerings should see strong demand. While developing AI features comes with costs, Microsoft plans to monetize them, charging $30 per user, per month for Microsoft 365 Copilot. This strategic move highlights the company’s intent to maximize technology revenue.
Moreover, Microsoft’s enterprise cloud services, featuring AI solutions, are poised for further expansion. Cloud revenue, a major income source, increased 25% year-over-year last quarter. Despite a higher P/E ratio, the stock’s premium valuation aligns with its substantial growth potential and recurring subscription revenue.
Alphabet (GOOG)
Investors responded positively to Alphabet’s (NASDAQ:GOOG) latest financial report, which exceeded revenue and earnings estimates, driving the stock’s ongoing robust performance, outpacing the Nasdaq Composite Index by 50% this year.
Alphabet, often associated with online advertising and cloud services, is emerging as a top streaming stock due to its substantial presence in video entertainment. YouTube, the second most popular website globally, along with YouTube TV and its addition to NFL’s Sunday Ticket, contributes to its streaming success. This make it one of those AI stocks to buy.
Although Alphabet faced a 4% decline in advertising revenue in Q4 2022, the latest quarter saw a 3% year-over-year increase. This suggests a rebound in their main business driver. As economic projections improve, ad spending might continue rising, benefiting Alphabet, whose ad revenue constitutes 78% of total Q2 sales.
Amazon (AMZN)
AI investment involves three layers: infrastructure for model training, the models themselves, and the applications. Amazon (NASDAQ:AMZN) Web Services (AWS) claims leadership across these layers, affirmed by Gartner for its comprehensive AI services and cost-efficiency.
Amazon’s investment appeal lies in its dominance across e-commerce, cloud computing, and ad tech, sectors poised for 14% annual growth. It leads in online retail, cloud services, and advertising, fortified by competitive advantages and a robust logistics network.
Additionally, Amazon’s strong foothold in e-commerce, cloud computing, and tech aligns with the 14% projected growth in these sectors. With opportunities in AI, its price-to-sales ratio of 2.7 seems reasonable compared to the 5-year average of 3.5. Wall Street rates it a “buy,” with a 21% upside potential to the $172 median 12-month target. It’s prudent to consider Amazon as a long-term investment due to market unpredictability.
On the date of publication, Chris MacDonald has a LONG position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
