All three AI stocks should be big winners over the long term.
Financial settlement season is in full swing. To borrow from ABC The wide world of sports Since its introduction several years ago, you can see “The Thrill of Victory and the Pain of Defeat” in companies' quarterly updates.
These ups and downs have been evident in several big tech companies that have announced quarterly results in recent days. Which artificial intelligence (AI) stocks are the best to buy after last week's big move? alphabet (GOOG 9.96%) (Google 10.22%), meta platform (meta 0.43%)or microsoft (MSFT 1.82%)?
Will it be 2 wins and 1 loss?
If you score these three AI leaders based on their stock performance after last week's earnings update, you'll find two big wins and one loss. The best news came from Google's parent company Alphabet, whose stock soared nearly 10% after the company reported first-quarter results on Thursday.
Alphabet's first-quarter sales rose 15% from a year earlier to $80.5 billion. Profits soared 57% to nearly $23.7 billion. The company's search, YouTube, and Google Cloud businesses generated significant growth. Alphabet pleasantly surprised investors by starting to pay a dividend for the first time.
Microsoft didn't surprise investors much, but it still delivered solid results in the third quarter of fiscal 2024. The company reported sales of $61.9 billion, an increase of 17% year over year. Profits rose 20% from the previous year to $21.9 billion. AI continues to be a big tailwind, with server products and cloud services revenue up 24%.
The big loser for this group last week was the meta. The company's stock price fell sharply after it announced its first quarter results on Wednesday. Meta's revenue rose 27% year over year to nearly $36.5 billion. Profits soared 117% to about $12.4 billion. Both numbers exceeded Wall Street expectations.
So what was the problem? During Meta's first-quarter earnings call, CEO Mark Zuckerberg focused primarily on initiatives that are losing money: AI and the Metaverse. The company also raised its full-year outlook for total expenses and capital expenditures, explaining that AI and Metaverse development will require more spending.
3 winners
I think Alphabet, Microsoft, and Meta were all winners, given their impressive revenue and profit growth in the latest quarter. More importantly, I expect all three stocks to be big winners for investors over the long term.
Some feared that generative AI could become a “Google killer.” But Alphabet CEO Sundar Pichai said on the company's quarterly conference call that search usage is increasing among people using Google's new AI overview. He also said, “There is a clear path to monetizing AI through advertising and the cloud, not just subscriptions.”
The partnership between Microsoft and OpenAI continues to deliver great results. CEO Satyanadera says his Microsoft Azure deals of $100 million or more grew 80% year over year in the most recent quarter. The number of deals over $10 million more than doubled. His Copilot AI technology at Microsoft is boosting sales across the board.
Mr. Zuckerberg appears to have predicted the sharp decline in Meta stock last week. “I think it's worth pointing out that at this stage of our product strategy, there's historically been a lot of stock price volatility, which means we're investing in scaling new products,” he said on the company's first-quarter conference call. “But in reality, that's not the case.” It has not yet reached profitability. “But historically, investing in building these new scaled experiences in our apps has been a very good long-term investment for us and for the investors who stick with us.” It was an investment,” he added.
One of the best choices so far
So which of these three AI stocks is the best one right now? My vote goes to Meta.
In my opinion, investors' negative reaction to Meta's quarterly update was overdone. Zuckerberg was right about the company's history of investing in new products that weren't monetized until later. I expect Meta to be successful in monetizing its AI and Metaverse products as well.
Meta has the lowest valuation of the so-called “Magnificent Seven” stocks based on price-to-earnings (PEG) ratios. I like (and own) Alphabet, Microsoft, and Meta, but now seems like the perfect time to buy Meta on the cheap.
Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool's board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool's board of directors. Keith Speights has held positions at Alphabet, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
