Identifying a company in the early stages of its growth from a new product or service can lead to fantastic returns, but it can also cause investors to lose big on hot stocks that eventually peter out. Fortunately, investors don't have to take chances when it comes to the emerging growth opportunity in artificial intelligence (AI). Some of the best AI stocks to buy are right under your nose.
Amazon (AMZN -0.71%) and Microsoft (MSFT -0.79%) have been investing in AI for years. These stocks delivered returns of more than 700% over the last decade, but they could still outperform the market for many years.
Let's look at the ways these leaders are using AI to fuel their businesses.
1. Amazon
AI is behind more of Amazon's business than many investors might realize. The most obvious uses of AI are in Amazon's cloud services business and product recommendations in the retail business.
Amazon Web Services (AWS) provides AI services for automating workflows, processing millions of documents, managing inventory, and powering speech recognition and chatbots in applications. This is just a small sample of how Amazon is helping its cloud customers improve efficiency and save money, which in turn has made AWS the leader in the cloud market.
AI also optimizes Amazon's supply chain by predicting demand trends. This helps Amazon get products to the right places. It also powers the Alexa voice assistant and warehouse robotics.
Amazon wouldn't have the resources to invest in cutting-edge technologies like this if it didn't have such a massive base of customers. The company has grown into an absolute behemoth of a business, generating $524 billion in trailing-12-month revenue. A business can't grow this large unless it has happy customers.
Amazon dominates e-commerce thanks to its speed of delivery and vast selection of in-stock products, which are enabled by AI. AI even helps Amazon automate a lot of basic customer service issues with chatbots.
It is clearly a key competitive advantage, and is a good reason to believe that Amazon will continue to grow in value for shareholders over the long term. The stock is down 44% from previous highs, which could turn out to be a bargain in 10 years.
2. Microsoft
Microsoft started to center its business around AI several years ago. Today this technology is a key driver of growth of the Azure cloud business, but it's about to be a centerpiece of its productivity software too.
Microsoft made its first investment in OpenAI's ChatGPT in 2019, and it is looking to infuse this technology across its consumer products and services. It recently announced plans to bring the AI-powered text generator to Word, Office, PowerPoint, and Outlook.
The company also recently launched a new version of its Bing search engine and Edge browser powered by AI copilot and chat. The company says there are 10 billion search queries every day, but only half of them get answered. AI will enable answers to complicated questions that search engines haven't been able to address before.
This is a pivotal year for Microsoft, and investors are sensing the long-term impact this could have on its growth. The stock is already up 28% year to date. Users of Word and Office could see significant improvements in their workflows -- a long-term catalyst for Microsoft's personal computing business.
If you're looking for safe ways to invest in AI, Amazon and Microsoft are good places to start. These companies are well entrenched in their respective markets, and each has the massive scale and profitable business models to richly reward investments for a long time.
