It seems that in recent months, artificial intelligence (AI) has gone viral, with consumers and businesses alike embracing next-generation chatbots powered by large language models. Not everyone is on board, however, with some of the brightest minds of our age calling for a pause on AI, citing unknown risks resulting from the nascent technology.
This leaves investors with a conundrum. Investing in a disruptive technology early on can be the best way to reap the long-term rewards, but the inherent uncertainty increases the risk substantially. Any moratorium on further development in AI could leave early stakeholders holding the bag. What are investors to do?
Fortunately, one of the tried-and-true strategies to deploy during times of uncertainty offers a way to invest in this quickly evolving technology without betting the farm. Buying stock in a company with a strong underlying business provides investors with a path to AI-driven gains, while eliminating much of the risk.
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The search is over
Those looking to buy an AI stock with confidence should look no further than Alphabet (GOOGL 0.23%) (GOOG 0.30%). It's hard to imagine a more stable business than search and Google is the undeniable leader. The company has used AI for years to surface the most relevant search results for users -- which helped Google dominate the worldwide search market with an incredible 93% share.
The company's unrivaled search acumen provides the foundation for its equally dominant -- and extremely profitable -- digital advertising business. Alphabet generated nearly $70 billion in revenue in the first quarter, with 89% of that from its adtech business.
There's more. Google Cloud provides a growing list of AI tools to its cloud computing users. The list recently got a great deal longer, with the addition of a host of new AI-fueled features. These include Gen App Builder, which helps developers create generative chat and search apps, and expansive machine learning development with Vertex AI, among others. Furthermore, Google Cloud is the fastest growing among the three major cloud infrastructure providers, with a long runway for growth ahead.
Even with its cash cow businesses, Alphabet still has plenty of ways to profit from AI. The company recently announced a plethora of ways that it was using AI to improve many of its existing features and services.
There's also Waymo, its AI-powered self-driving car company and one of the pioneers in autonomous driving. The company is in pole position with the launch of the first self-driving ride-hailing service, which could eventually be a huge revenue driver, particularly with the expansion of Waymo Via -- its autonomous trucking option.
The stock is also a great deal, with shares currently selling for just 4 times next year's sales, near its cheapest valuation since 2013. While that's slightly higher that the usual recommendation of a price-to-sales ratio of between 1 and 2, Alphabet is the industry leader in two markets and a significant player in a third, so it's deserving of a premium.
A social butterfly
Over the past couple of years, some investors had become disillusioned by Meta Platforms (META -0.81%), as falling ad revenue had some shareholders feeling downright antisocial. But digital advertising tends to suffer during economic downturns, and Meta's social media sites are no exception. Recent developments suggest all may be forgiven.
After three consecutive quarters of declining year-over-year revenue, Meta surprised investors with first-quarter revenue of $29 billion, up 3% year over year. But it was the company's commentary about AI that captured the attention of investors. CEO Mark Zuckerberg noted numerous content and engagement improvements, which he attributed to AI.
The company collects a growing cache of data from the 2.96 billion users who visit its social media platforms every day and 3.74 billion who stop by monthly. The AI on its platform not only helps surface relevant content, but also ensures the digital marketing on its platform targets the consumers most likely to act on those ads.
Meta recently released a suite of AI-driven tools called Advantage+ to help marketers reach their desired viewers and the results -- thus far -- were promising. The platform, which uses machine learning to identify the appropriate audience, resulted in greater ad efficiency and higher conversion rates.
"Daily revenue from Advantage+ Shopping Campaigns is up 7x in the last six months," Zuckerberg noted on the conference call.
Perhaps most importantly to investors, Meta Platforms retains the title as the world's largest social media platform and the second-largest digital advertiser, behind just Google. This gives the company plenty of resources to draw from while it finds new ways to monetize its growing AI expertise.
From a valuation standpoint, Meta Platforms is also reasonably priced, selling for just 4 times next years' sales. Not bad for an industry leader.
