Artificial intelligence (AI) is taking Wall Street by storm. With analysts estimating that the market will grow rapidly in the coming years, investors are rushing to buy shares of those corporations that could profit in one way or another. There are many to choose from, but two that look especially attractive right now are Meta Platforms (META 0.94%) and Microsoft (MSFT -0.60%). Let's see why these two tech giants are worth investing in through the next bull market and beyond.
1. Meta Platforms
Meta Platforms is using AI in ways that could boost its efficiency and profitability. One of the company's goals is to increase engagement on its social media platforms. How can AI help with this goal? Consider one of Meta's fastest-growing units, Reels, which are short-form, TikTok-style videos. The company boasts a massive AI-powered recommendation system that keeps its users glued to their screens.
The good thing is that greater engagement helps fine-tune and increase the predictive accuracy of Meta Platforms' AI recommendations, which drives even more engagement. Notice this is also good for the company's advertising business since the more time users spend on its platform, the more it becomes an attractive target for advertisers. That's how this could lead to greater revenue and earnings for the tech company. Meta Platforms has reported that Reels monetization is up meaningfully thanks to AI.
Naturally, there is more to the company than that product. There are several growth opportunities that Meta Platforms is likely to exploit in the coming decade. One of them is the launch of its Twitter alternative, Threads. Twitter has been a polarizing platform, especially after Elon Musk acquired it. And with more than 3 billion existing monthly active users, Meta Platforms already has a massive base of users to whom to advertise Threads.
The platform could become another advertising revenue source for the tech giant. There is more. Meta Platforms is ramping up its efforts to monetize WhatsApp, most notably with paid messaging and other tools available to small businesses. The company recently announced that its WhatsApp business now has more than 200 million MAUs, up from just 50 million in 2020.
And, of course, the company is still working on building the metaverse, which could be a trillion-dollar opportunity although it will take time to ramp that up. Meta Platforms has said that AI and the metaverse are the two technological trends driving its future. In the coming years, the company should see its ad business rebound while it makes steady progress with other initiatives that will help yield much stronger financial results.
2. Microsoft
Microsoft invested in OpenAI, the company behind ChatGPT, in a move that could help it profit from the growth of the industry. After all, ChatGPT became the fastest-growing app ever, racking up more than a million users in just five days. Just as important, ChatGPT has set the tone in what could become a race to develop the next generative innovative AI application. Online learning platform Chegg is using GPT-4, the latest version of the technology, to build an AI-powered online learning tool called CheggMate.
Chegg won't be the only company to use the technology in such a way. Microsoft itself is going after Alphabet's Google, which currently dominates the online search industry. Microsoft powered its Bing search engine with AI to give it an extra edge and try to compete with Google. Alphabet generates billions of ad revenue every year thanks to its dominance in this industry, so if Microsoft can make some headway in challenging its peer, it could turn into a lucrative initiative for the company.
However, while Microsoft's investment in ChatGPT has garnered plenty of attention, the company's provision of cloud-based AI services isn't new. No doubt, Microsoft will continue down this road, and the company should also seek to combine its newer AI initiatives into its fast-growing cloud business. In other words, Microsoft is looking to dominate two industries ripe for growth: AI and cloud computing. According to some analysts, the latter will expand at a compound annual growth rate of 14.1% through 2030.
With a 23% share of the market as of the first quarter, Microsoft is second only to Amazon in the cloud computing market. The company's leadership in AI and cloud computing could lead to outsize returns for its shareholders in the next 10 years and beyond.
