Investing in AI: Three Stocks to Consider Now
As the year nears its end, artificial intelligence (AI) stocks are continuing to fuel a bull market rally. With advancements in AI technology, several companies are well-positioned to benefit from its implementation. Here are three stocks that have recently pulled back in their prices and are now ripe for investment, given their promising growth potential.
1. Meta Platforms (NASDAQ: META)
Meta Platforms has significantly enhanced its advertising business through AI improvements. In the last quarter, the company reported a remarkable 26% increase in ad revenue, driven by higher prices per ad and increased impressions. Traditionally, an increase in ad impressions leads to decreased average ad prices. However, thanks to enhanced ad targeting and AI-driven tools, Meta is making its ads more effective, resulting in better returns for marketers.
Looking ahead, Meta aims to roll out an AI agent to manage the entire ad creation and testing process, which could open doors for small businesses that have previously struggled to compete. Although the company is investing heavily in AI development, with over $70 billion earmarked for capital expenditures this year, the ongoing growth in its top-line revenue suggests that these investments are well-justified. Current share prices are trading at around 21 times forward earnings estimates, making this a relatively affordable option compared to other AI players.
2. Adobe (NASDAQ: ADBE)
Adobe’s Creative Cloud has cemented its place in the workflows of creative professionals, and the growing capabilities of AI present both challenges and opportunities for the company. Despite concerns that AI might threaten its core subscription model, Adobe is making strides by enhancing its software with AI capabilities, including the introduction of the FireFly AI model. This has led to impressive double-digit growth in its annual recurring revenue (ARR), which was reported at 11.7% last quarter.
Adobe is actively expanding its AI product offerings, with sales of its AI-first products hitting $250 million in ARR prior to September. The company’s focus on AI has proven beneficial, aiding in user retention and attracting new customers, yet investor sentiment has not fully reflected this growth, as shares are trading at a forward PE below 14. This represents a compelling valuation for a company that continues to expand its top and bottom lines at a steady double-digit pace.
3. Microsoft (NASDAQ: MSFT)
Microsoft has surged to the forefront of the AI landscape following its $10 billion investment in OpenAI in early 2023, significantly boosting its stake’s value to approximately $135 billion. This strategic move has bolstered its Azure cloud computing business, which has seen a 51% year-over-year increase in cloud backlog, reaching $392 billion last quarter.
Despite challenges related to capacity constraints, Microsoft’s Azure growth remains robust, increasing by 39% recently. The company’s substantial investments in building new data centers reflect its commitment to scaling its services. While shares trade around 30 times forward earnings, the current valuation is below its historical averages, presenting a promising entry point for investors looking to capitalize on Microsoft’s leadership in the AI and cloud sectors.
In conclusion, with the rapid evolution of artificial intelligence and its integration into various business operations, investing in companies like Meta Platforms, Adobe, and Microsoft presents exciting opportunities. These stocks not only show growth potential but also exhibit resilience in the face of market fluctuations. For ongoing updates and insights on stock market developments, visit Stock Market News. Additionally, for effective stock portfolio management and retirement investments, you can explore options at Stock Portfolio Management.
