Artificial intelligence (AI) stocks have been roaring higher over the past several years — but one key concern interrupted the momentum several months ago. Investors worried about the valuations of certain AI stocks, and this put the brakes on the rally. On top of this, questions about the economy and geopolitical situation prompted investors to take a step away from these market movers and shakers. But, in recent times, as valuation has come down, earnings have shown strength, and the overall market environment has improved, AI stocks have regained momentum. This is great news, particularly for growth investors. But one question remains: How much longer will this last?
Billionaire Paul Tudor Jones, known for predicting the Black Monday crash of 1987, offered some insight in an interview with CNBC this week. The hedge fund manager said this rally isn’t over and could run for another year or two. Jones told CNBC he recently added to his AI positions, though he didn’t specify which stocks or assets he had purchased. He also suggested that when this movement comes to an end, the decline could be significant.
This suggests there’s still plenty of time to score an AI investing win. With all of this in mind, which stocks should you buy now? Let’s consider two that could soar in the near term and have what it takes to manage a future market pullback — and go on to advance over time.
Image source: Getty Images.
1. Microsoft
Microsoft (MSFT 1.33%) has lagged behind many of its big tech peers in recent times. The reason? Some have worried that AI tools could replace software — and that would be devastating news for a key part of Microsoft’s business. While AI may replace certain software in the future, I don’t think Microsoft is at risk. The company’s deeply integrated systems and its own use of AI within its software should keep customers on board. In fact, I see AI as making Microsoft’s software even more high-performance down the road than it is today.
Meanwhile, the company’s cloud business, Azure, is also benefiting from the AI boom as it offers a broad range of products and services to customers. In the recent quarter, Azure and other cloud revenue surged 40%. So AI clearly is an opportunity for Microsoft.
Today’s Change
(-1.33%) $-5.60
Current Price
$415.17
Key Data Points
Market Cap
$3.1T
Day’s Range
$414.00 – $418.61
52wk Range
$356.28 – $555.45
Volume
1.5M
Avg Vol
35M
Gross Margin
68.31%
Dividend Yield
0.84%
This company offers investors the balance of a well-developed earnings machine, as well as the opportunity for bursts of growth, potentially right around the corner, thanks to its involvement in technologies like AI and quantum computing. And this makes the stock a deal today as it trades at 24x forward earnings estimates.
2. Amazon
Amazon (AMZN +0.55%) has emerged as a key player in the AI revolution. The company uses AI across its e-commerce operation to gain efficiency and therefore boost earnings. But the even bigger story is Amazon’s role in the development and sales of AI products and services. This is through Amazon Web Services (AWS), its cloud computing business.
AWS offers everything a customer may need to advance its AI program, from chips to networking equipment and even a fully managed service called Amazon Bedrock. All of this has resulted in tremendous growth in recent times, with AWS reaching an annual revenue run rate of $150 billion.
Today’s Change
(0.55%) $1.49
Current Price
$272.66
Key Data Points
Market Cap
$2.9T
Day’s Range
$269.95 – $274.00
52wk Range
$196.00 – $278.56
Volume
1.6M
Avg Vol
50M
Gross Margin
50.60%
And these AI strengths have helped push another opportunity to the forefront: Amazon designs some of its own chips, and they’ve met with great demand — so much that in many cases certain chips are almost sold out. The company says the chips business, just counting its own in-house designed chips, has reached an annual revenue run rate of $20 billion. All of this suggests Amazon is well-positioned to deliver significant growth in the quarters to come.
Today, the stock trades at 31x forward earnings estimates, a reasonable level considering the company’s track record of growth and potential for an ongoing win in the AI market.
