Artificial intelligence (AI) technologies continue to advance at incredible speeds. Just a couple of years ago, OpenAI's DallE text-to-image platform was only capable of generating crude visuals. The program's output was an intriguing novelty and hinted at what was to come, but you probably wouldn't have wanted to hang anything it produced on your wall.
The pace at which AI technologies have progressed has been nothing short of incredible. This February, OpenAI demonstrated Sora, a text-to-video platform that is capable of generating Hollywood-level visuals simply by inputting text-based prompts. This is just one example of the incredible shifts that are currently underway.
As impressive as AI's progression has been so far, this technological revolution is still in very early stages. If you're looking to capitalize on this century's most disruptive technology shift, read on to see two top AI companies that Motley Fool contributors think would be great investments this month.
Microsoft has a stellar position in AI
Keith Noonan: Advanced AI technologies depend on powerful graphics processing units and other hardware. That means most large-scale apps will need to run and be distributed through the cloud. As a leading provider of cloud infrastructure services, Microsoft (MSFT 1.82%) is poised to benefit from surging AI-driven demand.
Notably, OpenAI has already signed on to use Microsoft's Azure service as its exclusive cloud provider for ChatGPT, Sora, DallE, and all other software that it produces. While Amazon remains the worldwide leader in terms of cloud infrastructure market share, Microsoft's service continues to gain market share -- and it's clear that AI developers love Azure.
Revenue for Azure and other cloud services increased 30% year over year in Microsoft's Fiscal 2024 second quarter (ended Dec. 31, 2023). The performance helped push overall sales up 18% year over year to $62 billion, and non-GAAP (adjusted) net income jumped 26%.
Since dethroning Apple earlier this year, Microsoft ranks as the world's most valuable company and has a market capitalization of roughly $3 trillion. Given the software giant's already enormous size, its sales and earnings growth are even more impressive -- and it looks like its strong performance will continue.
In addition to supercharging its cloud-infrastructure business, Microsoft's forefront position in AI should bolster its strengths in operating systems, productivity software, search, and media. AI should open up new growth opportunities for the company in cybersecurity and other categories.
And while Microsoft doesn't own a direct stake in OpenAI, the software giant reportedly poured $13 billion in funding into the AI innovator in exchange for future profit sharing. The two companies are also close partners, and Microsoft has already been integrating OpenAI's tech across various consumer and enterprise software offerings.
With all these resources, advantages, and opportunities, it's no stretch to say that Microsoft has one of the strongest overall positions in AI.
Meta Platforms gives shareholders an attractive AI investment option
Parkev Tatevosian: With AI taking the investment world by storm, investors looking to get in on the action are seeking out options. One option is a company that is capitalizing on the efficiencies that AI brings with it.
Social media giant Meta Platforms (META 0.43%) has made it known that it is transitioning to a focus on the metaverse. But while it builds out that segment of the business, it needs its current operations to keep performing. Increased user engagement remains critical to doing that and Meta is putting AI to use to surface more engaging content for users. More engaged users prolong user sessions and lead to incrementally higher revenue from the advertisers hoping to sell to those users.
Improvements in AI are contributing to Meta increasing its revenue from $40.6 billion in 2017 to $134.9 billion in 2023. With the support of more effective recommendation systems powered by improving AI, revenue growth has a good chance of continuing for several years. It also helps that Meta is becoming more efficient with how it puts that revenue to work. Meta's operating income rose from $20.2 billion to $46.8 billion in the above-mentioned years. AI efficiencies are helping Meta boost operating profit as well as sales.
META PE Ratio (Forward 1y) data by YCharts
Given Meta's improved financials, it's also seeing growth in interest from investors. And yet, despite a rising price (up 173% in the past year), the stock is not prohibitively expensive. Trading at a forward price-to-earnings ratio of 20.6, Meta's stock remains a decent value for long-term investors given its excellent prospects. Of course, there are risks with any investment and Meta's volatile performance over the past three years shows that. However, the risk versus reward is favorable at current valuations for this excellent AI stock if you are willing to buy and hold.
