Artificial intelligence (AI) stocks have moved higher in recent years as investors, looking to get in early on the next big change in technology, have bought into our hands. The momentum has continued, although in recent weeks concerns about a possible AI bubble have pushed some of these players lower – and reduced valuations as well.
It is important to remember that much evidence suggests that the long-term growth story of AI remains firmly intact. Best AI chip designer companies Nvidia that giant cloud Amazon reported increasing demand for their products and services and delivered strong revenue growth. In addition, analysts predict that today’s billion-dollar AI market will reach a value of more than $2 trillion by the next decade.
All of this means it’s a great idea to pick potential AI winners now, on the dip. And one AI stock in particular looks like a steal at today’s prices. Let’s consider this best AI player to buy now.
Image source: Getty Images.
The company I am referring to is a great choice for both cautious investors and more aggressive investors looking for growth. It is a well-established giant with a long track record of earnings gains, but is perfectly positioned to experience a new wave of growth thanks to its commitment to AI. I’m talking about powerhouse software Microsoft(NASDAQ: MSFT).
As mentioned, Microsoft has generated years of growth, making it a player that investors can approach with confidence.
MSFT Revenue Data (Annual) from YCharts
Investors will also appreciate the company’s dividend payments and share repurchases — in the most recent quarter, these resulted in more than $10 billion being returned to shareholders. An important point here is that, in any market environment, Microsoft investors benefit to some extent as they continue to collect dividends.
Meanwhile, growth investors will love the leadership Microsoft is building in the AI space and the fact that the technology is already boosting the company’s revenue. The recent quarterly update proves my point, with Azure and other cloud services revenue rising 40%.
Microsoft’s investment in OpenAI — it invested $13 billion in the AI research lab — has also led to growth, and that should continue. As part of a corporate partnership restructuring, OpenAI has agreed to buy an incremental $250 billion in Azure services.
Microsoft is also poised to benefit from the AI infrastructure build that is expected to increase between now and the next five years. The company, based on observed demand, plans to increase its AI capacity by 80% during this fiscal year and double its data center presence over two years. Although this involves an investment, the need for this computing capacity could result in explosive growth for Microsoft down the road.
Meanwhile, Microsoft’s variety of revenue streams, from computing to the cloud and advertising, and its overall financial strength offer it the ability to pursue AI and continue to increase earnings.
Now, let’s take a look at the company’s valuation. Microsoft stock today trades at 30x forward earnings estimates, down from more than 36x just a few months ago. That makes Microsoft the second cheapest of the Magnificent Seven tech stocks that have driven stock market gains over the past few years. (Meta Platforms is the least expensive by this metric, trading for 24x forward earnings estimates.)
Microsoft is a steal in this assessment for a few reasons. It’s a company with a fantastic moat, or competitive advantage — from its Windows platform to its Azure offerings, it’s hard to imagine another player dethroning this giant. Also, as I noted above, the company offers investors both the stability of a well-established company and the opportunity for significant growth going forward due to its investments in AI.
All of this makes this stock a bargain at the current valuation, and both cautious and aggressive investors can buy on the dip.
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Adria Cimino holds positions in Amazon. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: $395 long January 2026 Microsoft calls and $405 January 2026 Microsoft calls. The Motley Fool has a disclosure policy.
This Artificial Intelligence Stock Looks Like a Steal at Today’s Prices was originally published by The Motley Fool
