Title: Microsoft and Alphabet: AI Stocks with Potential for Further Upside
Artificial intelligence (AI) is a rapidly growing market, and while investing in start-ups can be risky, there are safer options available. Large tech companies like Microsoft and Alphabet (Google’s parent company) offer a secure avenue for investors to tap into the AI growth while enjoying market-beating returns.
Both Microsoft and Alphabet have been investing in AI for years and are well-positioned to benefit from the increasing demand for this technology. Microsoft’s share prices have risen by 40% year to date, while Alphabet’s stock has jumped by 35%. Despite these gains, their stocks are still considered fairly valued, with Microsoft trading at a forward price-to-earnings (P/E) ratio of 35 and Alphabet at 22 times expected earnings.
There are several factors that could contribute to the future success of these companies in the AI space. Microsoft, for example, is a partner with OpenAI, the creator of ChatGPT, an AI app that provides intelligent answers. With its brand recognition and large user base, Microsoft has the potential to significantly expand its user numbers once it introduces generative-AI features in Word and Excel.
Similarly, Alphabet’s core business relies heavily on AI, particularly in driving content recommendations on platforms like YouTube and Google search. AI has played a crucial role in Google’s ad business for the past decade, helping advertisers optimize their campaigns by generating relevant headlines and descriptions based on user search queries. Alphabet’s investments in AI will also fuel growth in Google Cloud, which has been its fastest-growing business.
While the advertising market experienced some stagnation during the last quarter, largely due to economic uncertainties, the market is expected to bounce back. As a result, Alphabet should see strong growth driven by its AI tools.
In terms of valuation, Alphabet presents a better value proposition with a forward P/E of 22, slightly below the average for stocks in the S&P 500 index. Analysts predict that Alphabet’s earnings will grow by 17% per year over the next five years, potentially leading to a doubling of the stock price.
Investors looking to capitalize on the AI boom can consider both Microsoft and Alphabet. While there might be other AI stocks that outperform them, these two tech giants offer a relatively safer investment option. With their ongoing investment in AI and the potential for accelerating revenue growth, Microsoft and Alphabet have the potential for further upside in the years ahead.
