Microsoft and Meta: AI Investments Present Buying Opportunities

The stock market is currently demanding tangible profits from artificial intelligence (AI) investments, creating a “show me” environment. Stocks of companies heavily investing in AI, but not yet realizing substantial returns, have experienced sell-offs. Two such stocks—Microsoft (MSFT) and Meta Platforms (META)—appear undervalued and present potential buying opportunities for investors.

Microsoft: A Neutral Powerhouse in the AI Race

Microsoft has established itself as a key player in the AI landscape, not through direct competition with generative AI models, but by providing the infrastructure for others to build and operate on. Its Azure cloud computing platform is a leading choice for training and running AI workloads, even as Microsoft invests significantly in OpenAI. Azure offers access to many leading AI models.

This neutral positioning, combined with strong financial performance—a 17% revenue increase in the last quarter and a 39% year-over-year increase in Azure revenue—makes Microsoft an attractive investment. Despite this strength, the stock currently trades at a price-to-earnings (P/E) ratio seldom seen in the past decade.

Historically, Microsoft’s stock rarely trades below a P/E ratio of 25. The current valuation presents a rare opportunity for investors to acquire shares at a discounted price.

Meta Platforms: Learning from the Past, Focused on the Future

Meta Platforms, formerly known as Facebook, owns a suite of popular social media platforms including Facebook, Instagram, Threads, WhatsApp, and Messenger. While these platforms continue to generate substantial revenue through advertising, investor attention is increasingly focused on Meta’s substantial AI investments.

Meta’s previous investments in the metaverse, augmented reality (AR), and virtual reality (VR) did not yield the anticipated results. However, the company is applying lessons learned from these experiences to its current AI endeavors, with the potential to develop a market-leading AI wearable.

Valuing Meta requires a forward-looking perspective. Currently, Meta’s stock trades at 21 times forward earnings, which is cheaper than the S&P 500’s 21.9 times forward earnings. This attractive risk-reward profile, combining the potential of AI with the stability of a strong advertising business, makes Meta a compelling investment.

Both Microsoft and Meta represent compelling investment opportunities for those seeking exposure to the AI revolution at a reasonable valuation.