The AI boom still has a long way to go, and all three of these stocks are great ways to invest in long-term potential.
Artificial intelligence (AI) is the biggest trend driving the stock market rally since the current bull market began in October 2022. Thanks to the massive increase in AI spending and the opportunities created by artificial intelligence, companies are increasing their combined market capitalization by trillions of dollars. Intelligence is unlocked. However, the AI boom may still have a long way to go.
According to Bloomberg Intelligence forecasts, generative AI cloud infrastructure could grow to a $470 billion market by 2032, growing at an average rate of 30% starting in 2022. Meanwhile, analysts expect software spending on things like specialized AI assistants and workflow improvements to rise 71% annually to a total of $318 billion.
High expectations for growth across the tech industry have sent the prices of some stocks soaring, but there are still plenty of opportunities for investors. With just $500, you can buy any of the following stocks at more than fair prices. All of these stocks should benefit as AI spending continues to rise.
1.Microsoft
microsoft’s (MSFT -2.79%) With its early investment in OpenAI, a pioneer in generative AI, the company was in an excellent position to take advantage of the growth in AI spending for both cloud infrastructure and enterprise software.
The company’s Azure AI service provides developers with access to leading large-scale language models, including GPT-4o, on cloud infrastructure. The service has more than 60,000 customers, up 60% year-over-year in the most recent quarter.
Management also notes that the average customer is spending more. This resulted in a 33% year-over-year increase in Azure revenue.
Management believes there is even more growth ahead. The company expects Azure revenue growth to accelerate in 2024 as much of its capital spending comes online and capacity is added to meet growing demand for AI cloud infrastructure services.
Meanwhile, Copilot, Microsoft’s AI agent, is seeing strong adoption across its enterprise software suite. Github Copilot, which helps software developers write code and improve their workflows, is the most widely adopted AI development tool. This brought Github’s revenue to $2 billion last quarter.
Microsoft has since adapted Copilot for general knowledge work in Microsoft 365, and it has seen rapid adoption. The number of daily users has doubled since last quarter.
At the time of writing, Microsoft stock trades at about 32 times analysts’ 2025 earnings estimates. This is certainly a premium price, but Microsoft has several factors to back it up. In addition to being an AI leader on two fronts, the company uses billions of dollars of free cash flow every quarter to buy back stock, making future returns more valuable to long-term shareholders. I’m doing it. With the current stock price around $420, there’s still time to buy this AI giant.
2. Adobe
adobe (ADBE -5.00%) We create software that is essential for all kinds of digital creativity. The company, which makes Photoshop, Premiere Pro, and Illustrator, develops AI models that help creators using its software get the most out of their tools.
Some investors are concerned that generative AI tools that can create images and videos could replace the need for some of Adobe’s software. But last month, Adobe announced several improvements to its generative AI model, Firefly, that show AI is more of a benefit to its business than a threat. For example, Firefly Video Generation for Premiere Pro lets you create commercially safe edits and fills, saving filmmakers time and resources. There’s no need to reshoot the entire scene just to fix a small mistake.
Management is monetizing its AI capabilities by offering tiered subscription products, add-ons that provide greater access to AI tools, and direct access to AI through Firefly services for creatives and GenStudio for marketers. I am.
The company’s free Adobe Express service also integrates the company’s Firefly model, which executives say “enables creativity for everyone.” The free service serves as a funnel to bring new customers to Adobe’s software suite, and it’s working well. Management says more potential customers who come to the company through Express are more likely to convert into paying subscribers.
As of this writing, Adobe stock trades at less than 25 times analysts’ 2025 earnings estimates. That’s a big price to pay for a company that expects steady revenue growth when customers pay for its AI tools. Expansion of scale backed by AI investment will lead to moderate profit expansion in the future, supporting strong profit growth. Your $500 is enough to buy one share of this solid software provider that develops the best AI tools in the industry.
3. Alphabet
Many see the growth of AI assistants like ChatGPT as a major threat to Alphabet. (GOOG -1.95%) (Google -1.76%) The core business of Google Search. But Alphabet is investing heavily in AI to prevent that from happening.
According to management, having the AI summary at the top of Google search results has increased user engagement and satisfaction. Other AI-driven features like Circle to Search and Google Lens on Android smartphones are driving search traffic to Search as well.
This is important because generative AI could have a significant impact on Google’s advertising business over the long term. Google’s AI model is called Gemini, and the company has built it into nearly all of its marketing tools. Gemini helps advertisers create and test hundreds of different ads with different copy and images.
Google’s AI tools also help marketers quickly direct ad budgets to high-performing ads and maximize spend. Finally, at a time when many users are blocking direct ad attribution from sites and apps, Google’s AI tools can help you measure conversions using predictive analytics.
Meanwhile, Google Cloud remains one of the largest public cloud providers and has benefited greatly from increased AI infrastructure spending. Google Cloud’s revenue increased 35% in the third quarter to $11.4 billion. The segment’s operating profit increased to $1.9 billion from $266 million a year ago, but it still has a long way to go to expand margins based on competitive results. This could significantly increase overall revenue in the coming years.
At the time of writing, Alphabet stock trades at just 20.3 times analysts’ 2025 earnings estimates. The growth potential from AI-powered marketing and spending on Google’s cloud infrastructure gives the company a favorable position that could allow it to grow profits at a faster rate than justifying its price tag for years to come. I’m in a position.
Analysts currently expect Alphabet’s earnings to grow at a compound annual rate of 22% over the next five years, making the current price multiple look absolutely insane. $500 can buy you multiple shares of Alphabet, giving you multiple ways to invest in the future of AI.
