Artificial intelligence (AI) stocks have soared over three years, driving the S&P 500 through this bull market. In these past three calendar years, the index advanced 78% thanks to this excitement about the technology. Investors loved the idea of getting in on something game-changing in its earliest days, so they flocked to AI players.
Then the great rotation happened. Early this year, a variety of concerns -- from worries about the conflict in Iran to questions about the long-term AI revenue story -- weighed on investors' minds, and this led them to rotate into other sectors viewed as safer. These are areas such as pharmaceuticals and consumer staples -- patients need their medicines and consumers need certain essentials regardless of the economic backdrop, and this offers revenue at these companies a certain stability.
The AI growth story isn't over, however, and investors have realized this as they've returned to these stocks in recent weeks. Corporate earnings and communications about the future show AI demand is strong, and this supports the long-term growth story. But the great rotation accomplished something positive for tech investors: It created a rare buying window on the Nasdaq, meaning certain stocks saw their valuations plummet. And in many cases, that window remains open. Here are the two best AI growth stocks to buy right now.
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1. Meta Platforms
You probably know Meta Platforms (META +0.37%) well for its leadership in the world of social media. The company owns popular apps such as Facebook and Instagram, and more than 3.5 billion people use at least one of Meta's apps daily. But Meta has also been making its mark on the world of AI.
The company has developed large language models, formed a superintelligence lab led by experts in the field, and is investing heavily in building out AI infrastructure. Meta already has started applying the fruits of its work to its social media apps and the advertising that generates most of its revenue. By adding AI features to its apps, we'll stay on them longer -- and by applying AI to advertising design and process, they will yield better results. All of this should supercharge ad revenue over time. And Meta's investment may generate other products and services that could broaden its sources of revenue.
NASDAQ: META
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Meanwhile, the solid social media business delivers ongoing earnings growth, allowing Meta to invest in its AI growth projects.
Meta is the cheapest of the Magnificent Seven tech stocks as it trades for 18x forward earnings estimates, making it a fantastic AI stock to buy and hold.
2. Microsoft
Microsoft (MSFT +0.82%) is a giant in the world of software -- as the owner of Word and Excel, to name two popular platforms -- and the company is seeing tremendous growth from its cloud computing business. Over time, these and other Microsoft businesses have generated positive earnings performance and pushed the stock price higher.
But in recent months, investors hesitated to invest in Microsoft as they worried that AI tools could rival its software -- and eventually replace it. I don't think this is likely to happen. For two reasons. First, Microsoft's systems are deeply entwined with its commercial customers' operations and the daily habits of individuals like you and me. Second, Microsoft has applied AI to its software -- as we can see clearly with Copilot -- to make it more powerful. So, as AI develops, Microsoft's software should benefit.
NASDAQ: MSFT
Key Data Points
At the same time, the company's cloud business is booming due to demand for AI products and services. In the recent quarter, the company said Azure and other cloud services revenue jumped 40%, and since Microsoft and peers have been noting the strength of AI demand, it's likely this growth will continue.
Right now, Microsoft stock trades at 24x forward earnings estimates, making it the second-cheapest of the Magnificent Seven. At this level, while the Nasdaq buying window remains open, it's a great idea to scoop up shares of this current and future AI winner.
