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Key Points
These companies have all adapted to and incorporated AI into their varied business models.
These stocks are reasonably valued for the growth and long-term safety they offer.
There are loads of artificial intelligence (AI) stocks out there. Just about any company these days wants to convince investors that it's a big player in AI and can benefit from the opportunities that emerge from that. It can be challenging to prove, and there are many pretenders out there.
However, there are three AI stocks that I think are the real deals, and that can be excellent options for any investor looking for exposure to AI: Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Microsoft (NASDAQ: MSFT), and Amazon (NASDAQ: AMZN).
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Alphabet
The initial fears about AI were that it would cripple Alphabet's business and destroy its search engine. However, Alphabet has proven why it's a top tech stock, turning what seemed like a risk into an advantage.
The company's AI overviews have changed the way its search engine works, allowing it to incorporate AI into the results. And while not everyone may be a fan of the AI-powered results, the numbers suggest that Alphabet's search business is doing just fine; during the first three months of the year, Google Search and other related revenue rose by 19%, totaling $60.4 billion. Alphabet's business is doing more than fine; it's thriving due to AI, as its growth remains strong. Its AI chatbot, Gemini, is also proving to be more than just a formidable competitor to OpenAI's ChatGPT but a real threat.
There are many ways Alphabet can incorporate AI into its business to add value, which is why this can be among the safest AI stocks to own. With a diverse business model and many growth opportunities, Alphabet still looks like a no-brainer buy despite soaring around 90% in the past 12 months. At 26 times its trailing earnings, this remains a reasonably valued growth stock to buy and hold.
Microsoft
Investors seem less convinced of Microsoft's AI capabilities, but I'm not. The company also has many opportunities to enhance its products with AI, including its popular Office software. With the help of Copilot, users can now generate forms and letters more quickly and create complex spreadsheet templates with greater ease.
As businesses realize the value Copilot offers, it'll be easier for them to justify upgrading and paying more for its AI-powered capabilities. There's a lot of value there that I believe the market is overlooking; otherwise, this stock wouldn't be trading at just 23 times earnings and be lumped in with other software stocks. Microsoft is a much safer option than most, as it has an underrated AI angle, making it a solid option today.
Although it's down 21% over the past 12 months, it may only be a matter of time before Microsoft's stock starts to rally again.
Amazon
Last but certainly not least is Amazon, a tech giant with plentiful AI-related opportunities. CEO Andy Jassy highlighted one of the company's most underrated potential growth catalysts: selling AI chips. Its Trainium chip has been in high demand, and with a focus on efficiency, it can unlock some significant growth for the business, with Jassy estimating its chip business could generate $50 billion in annual revenue.
For a company that has generated more than $740 billion in revenue over the past four quarters, that may not seem significant, but it's an opportunity that Amazon can put more money behind, possibly making chips a large part of its business in the future.
Amazon, like the other tech giants on this list, has shown that it can adapt to AI and leverage it to its advantage. At around 30 times its trailing earnings, technically, this is the most expensive stock on this list. But with strong fundamentals and many AI-related opportunities, it's another no-brainer AI stock to hang on to.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.
