The artificial intelligence (AI) market has blown up this year, triggering a recovery for many tech stocks that experienced significant declines under economic strains in 2022. The launch of OpenAI's ChatGPT last November sparked a frenzy among tech enthusiasts, causing many to rethink what they thought was currently possible with AI.
As a result, many companies have pivoted their businesses toward expanding the industry, with hopes to profit from its projected development. Apple (AAPL 1.24%) and Microsoft (MSFT +0.65%) have each made inroads in AI this year, with one prioritizing the consumer market and the other focusing on the commercial sector. As the world's first and second most valuable companies, these tech giants have substantial resources and could become major players in the industry over the long term.
So, let's look at whether Apple or Microsoft is the better stock to invest in AI.
Apple
In the third quarter of 2023, Apple's research and development spending increased by over $3 billion. CEO Tim Cook revealed in a Reuters interview that the rise was primarily due to a larger focus on generative AI. The surge in AI research aligns with a report from July that stated the company had built a framework for creating large language models and had developed an AI chatbot that engineers nicknamed Apple GPT.
While companies like Amazon and Microsoft have gone full force into AI, Apple has taken a quieter approach. Rather than hosting big presentations about its AI efforts, the company has instead sprinkled the technology across its product lineup. Apple is enhancing user experience with AI-driven improvements to Siri, photos, and autocorrect on the iPhone.
NASDAQ: AAPL
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Meanwhile, Apple Watch wearers can now control the device using simple hand gestures, and AirPods Pro will automatically turn off noise canceling when the user engages in a conversation, all thanks to AI.
Apple seems to be playing the long game in AI, banking on the idea that consumers will continue flocking to its devices if it can offer the best experience. Considering Apple has attained leading market shares in most of its product categories, I wouldn't bet against it retaining its spot at the top and using its devices to become the main growth driver in the public's adoption of AI.
Microsoft
Microsoft appeared to have the foresight of the decade when it invested $1 billion in OpenAI in 2019. The company has since increased that figure by an additional $10 billion, attaining a 49% stake in the start-up. The partnership propelled Microsoft ahead of the competition in AI, allowing it to be one of the first to introduce AI features across its software lineup.
Since the start of 2023, Microsoft has integrated OpenAI's technology into its Office productivity suite with new features in Word and Excel, made ChatGPT and other tools available in Azure, and brought AI upgrades to Bing.
NASDAQ: MSFT
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OpenAI's technology and the popularity of Microsoft's software could be a winning combination that sees the company become the biggest name in AI productivity software. Consumers and businesses worldwide are increasingly looking for ways to use AI to boost efficiency, and Microsoft is well equipped to win over the market.
Microsoft sees this growth potential and is moving to monetize its AI offerings. The company recently unveiled Copilot, an AI assistant that will soon launch as a $30 monthly add-on to a Microsoft 365 subscription. The new feature could offer a massive boost to sales and be an early step in attracting new users to the platform and other services.
Is Apple or Microsoft the better stock to invest in AI?
Apple and Microsoft have showcased very different strategies for expanding in AI. Apple has solid prospects over the long term, with its AI features likely to help it retain its dominance in the consumer tech market. However, Microsoft is currently the better stock to invest in AI as it has more earnings potential for now.
Microsoft holds the second-largest market share in cloud computing with its platform, Azure. Meanwhile, cloud services have become critical to helping businesses integrate AI into their workflows. The company's solid position in the industry and stake in OpenAI can allow it to offer customers some of the best AI tools in the market.
Moreover, the potency of Microsoft brands such as Word, Excel, PowerPoint, Outlook, and more is another way for the company to cash in on AI. Millions of consumers and businesses have come to rely on these platforms, strengthening Microsoft's claim in the industry as it continues upgrading its services with the help of AI.
So, if you're interested in investing in AI and stuck between these two companies, look no further than the tech behemoth that is Microsoft.
