Growth stocks have helped lead the market higher for over a decade, and there is a good chance that this trend will continue well into the future. This is especially true given that we are in the midst of an artificial intelligence (AI) revolution. However, even when buying growth stocks, you still want to buy them at reasonable valuations.
Let's look at two red-hot growth stocks trading at attractive valuations to buy this year.
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Meta Platforms
Among megacap tech names, Meta Platforms (META 2.44%) is showing some of the best revenue growth. The social media giant just grew its revenue by 24% year over year in the fourth quarter (Q4), and projected its revenue growth to accelerate in Q1.
Meta has become one of the best examples of how companies can use AI to drive growth. It's created AI-powered tools that it's put in the hands of its small and medium-sized customers, which now help them create more captivating ad campaigns, while also helping them identify users more likely to be close to buying their product or service, improving targeting and conversions. Improved ad performance is then leading to higher ad prices, as demonstrated by the 6% increase in ad prices it saw in Q4.
NASDAQ: META
Key Data Points
At the same time, Meta is also using AI to help attract new users and keep existing users on its sites longer. Facebook and Instagram are as much about entertainment today as connecting with friends and family, and through AI, Meta is now feeding users more of the content they are interested in. As users spend more time on its sites, Meta can display more ads to them. This helped lead to an 18% increase in ad impressions in Q4.
Meanwhile, Meta still has a big opportunity in front of it. It is aggressively investing in AI to improve even more, while it is still just starting to serve ads on its popular messaging platform WhatsApp, which has 3 billion monthly users. It also has a new platform called Threads that is still in relatively early development.
Despite its strong growth, Meta's stock is attractively valued, trading at a forward price-to-earnings (P/E) ratio of around 21.5 times based on the analyst 2026 consensus. Between its growth opportunities and valuation, the stock is a buy.
Microsoft
Trading at a forward P/E of 24 times, Microsoft (MSFT 0.51%) is another attractively valued growth stock to consider. The company grew its revenue by a robust 17% last quarter to $81.3 billion.
Microsoft's growth is being led by its cloud computing unit Azure, which has seen its revenue climb by 30% or more for the past 10 quarters. This included last quarter (its fiscal Q1) when Azure revenue surged 39%. The growth is being led by the current insatiable need for computing power, as well as the company having privileged access to OpenAI's top models.
NASDAQ: MSFT
Key Data Points
Meanwhile, Azure's strong growth should continue. Microsoft holds a 27% stake in OpenAI, and the large language model (LLM) maker pledged to spend an incremental $250 billion with Azure last October. Anthropic has also committed to spending $30 billion with Azure, with an option to contract another gigawatt of compute power. These deals and the huge demand for computing power should help drive continued strong growth for Azure over the next several years.
At the same time, Microsoft's software business has also been seeing solid growth. Last quarter, Microsoft 365 Consumer revenue jumped 29%, helped by a price increase, while Microsoft 365 Commercial revenue climbed 17%. The company is starting to see solid momentum with its AI assistant co-pilots in the enterprise space, which should continue to be a growth driver. Last quarter, it saw a tenfold increase in co-pilot daily users and a 160% seat growth.
Between Azure's rapid growth, the momentum it is seeing with its co-pilots, and an attractive valuation, Microsoft is a solid buy at current levels.
