The U.S. stock market has been volatile since the pandemic of 2020, with fluctuations driven by economic uncertainties and geopolitical pressures. Despite this, the stock market remains a wealth-creation machine for long-term investors. An investment of $10,000 in the S&P 500 at the beginning of 2020 would have become $14,566.80 at the end of 2023 (assuming reinvestment of all dividends), even amid the market ups and downs.
AI (artificial intelligence) has emerged as the red-hot investment trend, thanks to how it is changing the way people live, study, work, and play. AI is also not a passing trend, and is now playing a major role in determining the operations and future growth initiatives of businesses across the world.
Hence, it makes sense for investors to deploy their capital in high-quality AI stocks and capture robust returns in the long run. Here's why Microsoft (MSFT 0.60%) and Meta Platforms (META +0.22%) fit the bill.
1. Microsoft
For a long time, Microsoft had been known mainly for its Windows operating system and Microsoft Office productivity suite. However, besides its software dominance, the company is now also seen for its prowess in the generative AI field, thanks to its long-standing partnership with ChatGPT creator OpenAI.
NASDAQ: MSFT
Key Data Points
The second dominant player in the cloud infrastructure space, the Microsoft Azure cloud computing platform, continues to be a major beneficiary of increased enterprise spending on AI services. Azure's revenue was up 30% year over year, wherein 6% growth came from increasing adoption of AI services.
Azure offers its clients computation power based on a diverse selection of AI chips, including those from Advanced Micro Devices and Nvidia, as well as first-party silicon chip Azure Maia, to ensure high performance in training and inferencing of AI models. Azure OpenAI Service also enables clients to select from a range of proprietary and open-source foundational models, all of which are already deeply integrated with the Azure platform.
Not surprisingly, Azure OpenAI Service is already being used by more than half of the Fortune 500 companies. Azure AI had 53,000 customers at the end of the second quarter fiscal 2024 (ending Dec. 31, 2023), which included both AI-first start-ups and large enterprises. Furthermore, Microsoft's focus on tailoring Azure solutions to the specific needs of multiple industries through industry clouds and cross-industry clouds is also driving usage.
Microsoft's AI-powered assistant Copilot is also gaining traction. The company noted up to 70% improved productivity in specific tasks with the use of generative AI. Microsoft has added Copilot to multiple products, including Microsoft 365 productivity suite, GitHub, Dynamics 365, and security offerings. Copilot can also be seamlessly integrated into third-party systems from Salesforce, ServiceNow, and Zendesk. This allows organizations to benefit from its AI-powered capabilities without significant disruptions to existing workflows.
All these AI capabilities can eventually bring in significant revenue streams for Microsoft. Plus, the company is standing on solid financial ground, with $81 billion in cash at the end of the second quarter.
Hence, considering Microsoft's sustained growth potential, this seems to be the right time for long-term investors to pick up at least a small stake in this AI stock.
2. Meta Platforms
Shares of digital advertising giant Meta Platforms (and owner of social media platforms such as Facebook, Instagram, WhatsApp, and Messenger) surged 194% in 2023 and nearly 43% so far in 2024. Despite these gains, there are multiple reasons why the stock can prove to be a stellar investment in the coming decade.
NASDAQ: META
Key Data Points
First, Meta managed to turn its disadvantages into strengths. In 2022, Apple made significant changes to its privacy policy, giving users the choice of refusing to share data with advertisers. Meta's advertising business was among the ones hardest hit by these changes. However, the company made a solid comeback by building an AI discovery engine that analyses past user behavior, preferences, and interactions to recommend personalized content including Reels, Groups, Feed, and even targeted advertisements to interested viewers.
These recommendations are playing a pivotal role in increasing daily usage of its platforms among the younger population (age 18 to 29 ) in the U.S. This demographic is exceptionally important for the advertiser community, mainly due to its high lifetime value.
Second, Meta is also focusing on unifying its AI-powered recommendation system across Meta's video ecosystem (short-form, long-form, and Reels). By leveraging a vast amount of data across video types, the company aims to recommend more relevant and responsive content to users, thereby enhancing user engagement. Improvements in AI technology will improve ad targeting and conversion rates, further bumping up ad revenue for Meta in the coming years.
Third, Meta has also invested in AI tools and products (Advantage+ suite) to help advertisers automate the creation of advertisements. The company is also introducing generative AI features for content creators to boost user engagement.
Fourth, these AI initiatives have helped expand Meta's user base and increase advertising revenue across geographies. In the fourth quarter of 2023 (ending Dec. 31, 2023), the company's monthly active user base was up 6% year over year to 3.98 billion people. Meta's ad revenue rose 24% year over year to $38.7 billion.
With Meta's user base accounting for nearly half of the global population of 8 billion, the company is exceptionally positioned to capture an even bigger share of the global digital advertising market, which is estimated to grow from $363 billion in 2023 to $1.1 trillion in 2032.
Considering these robust tailwinds, Meta can prove to be an attractive pick for long-term investors.
