Over the past year, artificial intelligence (AI) has captivated companies and investors, demonstrating its potential to drive the next wave of economic growth.
Among the potential beneficiaries, some standout companies appear well positioned to benefit from the AI boom – and, importantly for investors, still maintain relatively reasonable valuations. Here are three such stocks and a look at how each is integrating generative AI into its business strategy.
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Some investors fear that generative AI could destroy Google Search, the largest segment for Google Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL)as startups like OpenAI’s ChatGPT have taken market share. These concerns have some validity, as research shows that Google has lost nearly 3% of its total market share since ChatGPT launched in November 2022. Moreover, experts believe that the US Department of Justice could soon ban Google’s long-standing deal with Google. Applemaking Google Search the default on iPhones.
But looking at the numbers, Google Search still accounts for 89.3% of total searches worldwide, according to Statcounter, a web analytics company. The segment continues to deliver strong results for Alphabet, generating $49.3 billion in revenue for the third quarter of 2024, representing a year-over-year increase of 12.2%. Moreover, if the deal with Apple falls through, Alphabet will save an estimated $25 billion annually that it had been paying to the iPhone maker.
Alphabet is taking the threat of AI seriously and has spent a whopping $49.3 billion on capital expenditures, most of which has been spent on building out its AI infrastructure, which includes servers and data centers. Google Search users may have already seen how the company rolled out “AI Overviews,” which summarize search results in short paragraphs. Management claims the new feature reaches more than 1 billion monthly users.
Alphabet shares are up nearly 30% this year and trade at a valuation of 24 times earnings. Notably, the five-year average price-to-earnings ratio is higher at 26.6 times earnings, suggesting the stock is on sale. With $82.3 billion in net cash at its disposal, the company can continue to return capital to shareholders through dividends and share repurchases. For example, Alphabet initiated its first ever dividend in 2024 and has repurchased 11% of its outstanding shares over the past five years, increasing the ownership stake of existing shareholders.
The next tech giant on this list is Metaplatforms(NASDAQ: META)the parent company of Facebook and Instagram. The stock is up more than 60% through 2024 and recently posted quarterly revenue and net profit records. Like Alphabet, Meta has issued its first ever dividend this year, with a quarterly dividend of $0.50 per share, which equates to an annual yield of 0.35%.
Meta is also allocating capital expenditures, with management expected to spend between $38 billion and $40 billion, mainly on building out its AI infrastructure. Management says AI is already transforming the business, with CEO Mark Zuckerberg recently noting: “We see AI having a positive impact on almost all aspects of our work – from our core business and revenue generation to our long-term roadmaps for new projects. services and computing platforms.”
Meta’s financial figures show that AI can already have an impact. For the third quarter of 2024, the company generated $40.6 billion in revenue and $15.7 billion in net income, representing increases of 19% and 35% year over year, respectively.
Additionally, Meta’s operating margin improved from 40% to 43% in the quarter, the highest level in three years, which could indicate how well AI is improving the company’s ability to improve engagement and monetization.
Looking at Meta’s valuation, the stock trades at 28 times trailing earnings, slightly above the five-year median of 27 times earnings. However, with $42 billion in net cash on the balance sheet and improving margins, the stock appears reasonably valued.
The last company on this list, Microsoft(NASDAQ: MSFT)is also the one with the largest capital expenditures in the last twelve months, at $49.5 billion. Please note that this figure does not include the estimated $13.8 billion in investments in OpenAI since 2019.
GOOGL Capital Expenditure (TTM) Chart
In terms of how Microsoft is integrating AI, the company is already seeing success in its workflow products. During the company’s most recent quarterly earnings call, CEO Satya Nadella stated that the technology is driving a “fundamental change in the business applications market as customers move from legacy apps to AI-first business processes.” The company claims its AI business is on track to become the fastest growing company in its history, with annual revenues of $10 billion.
With the help of its AI transformation and its recent $69 billion acquisition of Activision Blizzard, Microsoft recently set quarterly records for both revenue and profit. Specifically, the company generated $65.6 billion in revenue and $24.7 billion in net profit in the first quarter of 2025, representing year-over-year growth of 16% and 11%, respectively.
Like the other tech giants on this list, Microsoft uses its $33.3 billion net cash stock to pay dividends and buy back its shares. The company recently announced a quarterly dividend increase to $0.83 per share and a new $60 billion share buyback program.
On a valuation basis, Microsoft trades at 35 times trailing earnings, close to the five-year median of 34 times trailing earnings. Given its fair valuation, combined with its financials and investments in AI, Microsoft is poised for continued growth, making it an attractive choice for long-term investors.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Collin Brantmeyer has positions at Alphabet, Apple and Microsoft. The Motley Fool holds positions in and recommends Alphabet, Apple, Meta Platforms and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
3 Technology Stocks to Buy Hand Over Fist in November was originally published by The Motley Fool
