Two Great AI Stocks to Consider Buying Now

Artificial intelligence (AI) is emerging as one of the most promising investment opportunities we have seen in years, potentially spanning decades. This perspective is echoed by Amazon CEO Andy Jassy, who suggests that "Generative AI may be the largest technology transformation since the cloud, which itself is still developing, and perhaps even since the internet."

Wall Street has taken note of the growing interest in AI, with many companies in the AI space seeing significant growth over the past two years. However, there has been a recent decline in share prices due to some industry-specific challenges. For instance, a China-based company named DeepSeek unveiled an AI chatbot that required considerably fewer resources than those used by leaders in the field, sparking a ripple effect across the industry. Additionally, broader market challenges, such as the impacts of trade tensions, have influenced this downturn.

Despite these challenges, the recent drop in share prices could provide an excellent opportunity for investors to buy top AI stocks that still show great potential. Two notable companies worth considering are Apple (AAPL) and Microsoft (MSFT), both part of the so-called "Magnificent Seven," which remains a solid choice for those looking to hold onto strong assets even with their market caps close to $3 trillion.

Apple

Apple has been somewhat late to the AI scene, as it only recently announced plans to integrate a variety of AI features—collectively referred to as Apple Intelligence—into its products and operating systems. By the time Apple entered the AI space, several companies were already generating substantial revenue from their AI initiatives. Consequently, the tech giant's initial foray into AI received a lukewarm reception from investors and analysts, with many awaiting a clear signal of impact on the sales cycle for the iPhone and other devices.

However, Apple has a history of success in refining existing technology, often turning late entries into market leaders. The iPhone wasn’t the first smartphone, nor did AirPods or the Apple Watch pioneer their respective categories, yet all became immensely popular. One major advantage for Apple is its vast ecosystem, consisting of 2.35 billion active devices, which presents numerous monetization opportunities. Coupled with one of the world’s most recognizable brands, Apple’s AI initiatives, even if they are not groundbreaking, could capture considerable attention.

In addition to AI, Apple is focusing on expanding its revenue through its services segment, which currently boasts over one billion paid subscriptions. Many of these service areas show promising long-term growth, particularly in sectors like fintech. As the company’s high-margin services segment continues to grow, it will positively influence its bottom line.

Furthermore, Apple remains a solid investment for income-focused investors. The company has increased its dividend by 92% over the past decade and maintains a conservative cash payout ratio of 14%. As of now, Apple’s stock is down around 12% this year, but it remains appealing for long-term investors, especially those who opt to reinvest dividends for greater returns.

Microsoft

Microsoft has strategically positioned itself in the AI landscape, having invested in OpenAI—creator of ChatGPT—years ago. Recognizing the potential in AI early on, Microsoft has developed a range of services through its cloud computing platform. Microsoft Azure has been a significant growth driver for the company, and AI advancements continue to enhance this momentum. In its second fiscal quarter ending December 31, Microsoft reported revenues of $69.6 billion, marking a 12% increase from the previous year, with Azure revenue jumping 31% during the same period.

According to management, Microsoft’s AI segment now has an annual run rate exceeding $13 billion. While this may seem modest relative to the company's overall quarterly revenue, the AI segment's growth rate has surged an impressive 175% year over year. Given the early stage of both the AI sector and the broader cloud revolution, Microsoft’s initiatives in AI are likely to yield substantial results in the years ahead.

Additionally, Microsoft maintains its leadership in operating systems and has a robust gaming segment, along with a suite of productivity tools that are deeply integrated into millions of businesses. Known for its strong brand and reliable dividend, Microsoft has increased its dividends by nearly 168% over the past ten years, with a cash payout ratio of just under 30%. This dual focus on growth and income makes Microsoft an attractive option for long-term investors, even amidst a 6% dip in share prices this year.

Both pathways presented by Apple and Microsoft make them worthy contenders for investors looking to capitalize on the AI boom, especially during current market adjustments.

AI, Investing, Tech