Microsoft stock and two AI giants powered by undervalued engines

Artificial intelligence is no longer just a buzzword. This is a core part of how chips, software, cloud platforms, and tools like ChatGPT are built and used. As inflationary pressures ease in some regions and central banks reassess policy, investors are returning to focus on companies directly involved in the transition from semiconductors to large-scale language models. Our AI stock screener focuses on companies at the center of that transition, helping you filter a crowded market into a more targeted watchlist. This article introduces the three most promising candidates from that screener.

Microsoft (MSFT)

overview: Microsoft is a global technology company that sells software, cloud services, devices, and games, with products such as Microsoft 365, Windows, Azure, LinkedIn, Xbox, and a growing suite of AI tools, including Copilot, built across its ecosystem.

operation: Microsoft derives most of its revenue from Productivity and Business Processes (US$135.3 billion) and Intelligent Cloud (US$128.4 billion), with More Personal Computing contributing US$54.6 billion.

Market capitalization: 2.90 ton dollar

Microsoft has a large presence in the AI ​​space because the same Azure infrastructure that supports OpenAI models also powers Copilot in Microsoft 365, NHS healthcare deployments, and a wide range of corporate partnerships, all while being supported by a large and profitable software base. Despite strong recent earnings growth and high margins, the company’s stock trades at a lower P/E than many of its software peers, which some investors see as a relative value opportunity. Meanwhile, areas such as investments in AI data centers, regulatory scrutiny of its cloud and productivity stacks, and recent insider sales have all come under intense scrutiny from some market participants. A key consideration for investors is how these AI workload, contract, and governance choices may impact their overall risk-reward profile going forward.

Microsoft’s AI engine is accelerating across Azure and Copilot, but the stock still has a lower P/E than many of its software competitors. This raises big questions, but Microsoft’s DCF valuation analysis is finally starting to provide answers.

ServiceNow (Now)

overview: ServiceNow is a cloud software company that helps large organizations run digital workflows. Connect IT, customer service, HR, finance, and other departments using a single platform to help tasks, approvals, and data flow more smoothly, and AI is increasingly being incorporated into these processes.

operation: ServiceNow generates approximately US$14 billion in revenue from Internet software and services, of which approximately US$8.3 billion comes from the United States, with the remainder spread across EMEA, Asia Pacific, and other North American markets.

Market capitalization: 105.35 billion USD

ServiceNow stock stands out in the AI ​​software space because it’s already at the center of mission-critical workflows, turning AI into practical automation rather than experimentation. The company generates free cash flow in the billions, has a net cash position, and expects subscription revenue to be approximately USD 15.7 billion to USD 15.8 billion in 2026. This is supported by partnerships with IBM, NVIDIA, Microsoft, AWS, and others that build ServiceNow as an AI control layer for large enterprises. On the flip side, the execution of AI monetization and workflow implementation is critical for investors as they watch this story unfold, with rich valuations, insider sales, and continued dependence on companies’ IT and AI spending.

ServiceNow’s AI engine is quietly becoming the control room for large enterprise workflows, but many investors are still focused on headline valuations. There’s real tension in analyst forecasts for ServiceNow, and one assumption can change the entire story.

Alphabet (GOOGL)

overview: Alphabet is the parent company of Google and YouTube, and while it makes most of its revenue from online advertising, it also operates products such as Search, Android, Chrome, Maps, Gmail, Google Play, subscription services such as YouTube TV and YouTube Music, and the fast-growing Google Cloud and AI platforms.

operation: Alphabet generates the bulk of its $421.5 billion in revenue from Google services, around $355.1 billion, with Google Cloud contributing $66.5 billion and other bets contributing $1.5 billion.

Market capitalization: 4.38 ton dollars

Alphabet offers a combination of a cash-rich advertising business, a profitable cloud platform, and an AI stack from custom chips to apps like Gemini in Workspace, all backed by a 33.5% ROE and 37.9% net income. The company is investing heavily in its AI infrastructure, with significant equity funding, a rapidly expanding Google Cloud backlog, and deals such as the multi-year SpaceX GPU contract, which could reshape how the company scales its AI services. At the same time, with a P/E ratio of 28.1x, significant capital expenditures, and ongoing regulatory and governance issues, a key consideration for investors is how the risk-reward balance will evolve as AI monetization expands beyond search and YouTube.

Alphabet’s cash-rich ad engine and AI infrastructure push go hand in hand, but the real story lies in how these trends intersect within Alphabet’s analytics reporting. One hidden pressure point can make all the difference.

The three AI stocks in this article are just a starting point. The full screener has surfaced a further 195 companies with direct ties to chip, software, LLM, cloud, and the broader ChatGPT shift, each with their own potential AI story waiting to be tested. To identify and analyze the highest conviction across that group, use our Artificial Intelligence/AI Stock Screener to filter for the precise catalysts, balance sheet strength, and AI exposure that are most important to your approach.

Take control of your investment journey

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Looking for a fresh alternative before you leave?

Fresh stock ideas don’t stay quiet for long, and it can take weeks to catch or miss initial momentum. Get in front of the crowd and take action now with these curated lists.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.

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