Under the spotlight of financial markets, AI-related stocks, valued at billions and even trillions of dollars, are garnering increasing interest. Between major investment opportunities and the potential for a bubble about to burst, the question of whether AI stocks represent the Holy Grail of investing divides investors. This duality between promise and risk fuels debates and analyses, offering a fascinating insight into the future of these tech companies.
The Potential of Artificial Intelligence Stocks
Large companies can sometimes be perceived as offering less upside potential compared to smaller ones. This perception is one of the reasons why some investors hesitate to invest in stocks with a market capitalization exceeding one trillion dollars. However, tech giants like Microsoft (NASDAQ: MSFT) and Meta Platforms (NASDAQ: META) possess a recent advantage that could allow them to generate solid returns in the medium term: artificial intelligence (AI).
Microsoft and Generative AI
Microsoft has played a major role in the recent rise of AI with the emergence of ChatGPT. The company has invested in OpenAI, the firm behind ChatGPT, and has since strengthened this collaboration by now holding a 49% stake in OpenAI. Microsoft is also marketing services that allow other companies to create their own generative AI platforms through its cloud computing arm, Azure.
More than 65% of Fortune 500 companies are now using Azure OpenAI services, highlighting their potential for Microsoft, especially as cloud computing remains the company’s main growth driver. Microsoft’s recent financial results reflect this trend: for the third quarter of fiscal 2024, revenues increased by 17% year over year to reach $61.9 billion, while net income rose by 20% to reach $21.9 billion.
Meta Platforms and AI Innovation
In 2021, Meta Platforms (formerly Facebook) launched Llama, a large language model. Since then, the company has introduced several newer versions of Llama in open-source. Meta AI, a virtual assistant based on Llama, is also part of the company’s initiatives to strengthen its business. AI algorithms on Facebook and Instagram promote the consumption of Reels, thus increasing Meta’s advertising revenue.
Although AI does not yet contribute significantly to Meta’s revenues and profits, this dynamic could change as the company positions itself as a leader in the field. Meta also has a massive digital ecosystem, with 3.24 billion daily active users at the end of the first quarter, allowing it to recover from declines in advertising spending and generate solid revenues.
AI: Infinite Potential or Bubble Risk?
AI stocks present obvious appeal for investors looking to capitalize on cutting-edge technological innovations. Giants like Microsoft and Meta have strong competitive advantages, including network effects for Meta and high switching costs for Microsoft’s operating system. Additionally, both companies are heavily betting on growth in cloud computing and AI, with attractive opportunities across various sectors.
However, investors must remain vigilant. The excitement around AI could potentially inflate a bubble if growth expectations do not materialize to the level of current forecasts. Therefore, it is crucial to make investment choices based on solid data and a clear understanding of the inherent risks.
Conclusion: The Balance Between Opportunities and Risks
For long-term investors, AI stocks from Microsoft and Meta Platforms present a balance of innovation, growth potential, and strong competitive advantages. However, it is essential to approach these opportunities with a balanced perspective, assessing the potential risks of a bubble. The key to successful investing in this area lies in rigorous analysis and prudent management of expectations.
