Three Straightforward Artificial Intelligence (AI) Shares to Purchase with a $500 Budget Today
Three Straightforward Artificial Intelligence (AI) Shares to Purchase with a $500 Budget Today
Artificial Intelligence (AI) is the major force propelling gains in the stock market since the commencement of the present bull market in October 2022. Companies have combined to increase their market caps by trillions of dollars due to substantial growth in AI investment and the potential unleashed by advanced generative AI. However, the AI boom might still have plenty of room to expand.
Cloud infrastructure for generative AI might grow into a $470 billion market by 2032, growing at an average rate of 30% from 2022, as projected by Bloomberg Intelligence. Moreover, analysts anticipate that spending on software, such as specialized AI assistants and workflow improvements, will increase by 71% yearly and reach a combined total of $318 billion.
High anticipations of growth across the tech industry have caused some stocks to surge in value, but there remain numerous opportunities for investors. With $500, you could purchase any of the following stocks at a reasonable price. As AI spending continues to rise, these stocks should all benefit.
1. Microsoft
Microsoft's (MSFT 0.64%) early investment in generative AI innovator OpenAI places it in a favorable position to maximize gains from the growth of AI expenditure for both its cloud infrastructure and enterprise software.
The company's Azure AI service provides developers with direct access to leading large language models, including GPT-4o, on its cloud infrastructure. Microsoft currently has over 60,000 clients for this service, indicating a 60% year-over-year growth in the most recent quarter.
Management also emphasizes that average client spending is climbing as well. This growth helped push Azure revenue to 33% year-over-year increase.
Management believes that there is still a significant amount of growth potential ahead. They expect accelerating Azure revenue growth as more of their 2024 capital investments become operational and more capacity is added to meet the growing demand for its AI cloud infrastructure services.
Meanwhile, Microsoft's AI assistant, Copilot, is witnessing robust adoption across its enterprise software suite. Its Github Copilot, which helps software developers by generating code and optimizing workflows, has become the most widely used AI development tool. It contributed to a $2 billion revenue run rate for Github in the most recent quarter.
Microsoft has subsequently applied Copilot for general knowledge tasks in Microsoft 365, and it has experienced rapid adoption. The number of individuals utilizing it daily doubled sequentially in the most recent quarter.
Microsoft stock is currently trading at 32 times analysts' estimates for 2025 earnings, as of this writing. This is indeed a premium price, but Microsoft boasts several factors supporting this level. It is not only a leading AI company in two areas but also consistently utilizes billions of dollars in free cash flow each quarter to repurchase shares, making future earnings more valuable for long-term shareholders. With the current share price around $420, there's still time to invest in this AI giant.
2. Adobe
Adobe (ADBE -1.36%) is a leading provider of essential software for digital creativity. It is the company behind Photoshop, Premiere Pro, and Illustrator, and it is developing AI models to enhance the creative capabilities of its users.
Some investors express concerns that generative AI tools capable of creating images and videos might render some of Adobe's software obsolete. However, Adobe unveiled multiple improvements to its generative AI model, Firefly, last month, indicating that AI is a more beneficial than a threatening factor for its business. Firefly video generation for Premiere Pro, for example, can create commercially safe edits and fills, saving filmmakers time and resources.
Management is capitalizing on its AI capabilities by offering tiered subscription plans, additional AI tools for purchase, and direct AI access to Firefly services for creatives and GenStudio for marketers.
Its free Adobe Express service also integrates Firefly to "cultivate creativity for all," as management says. The free service functions as a gateway to attract new users to Adobe's software suite, and it's proving successful. Management reports that potential customers that come to them through Express convert better into paid subscribers.
Adobe shares are currently trading at less than 25 times analysts' estimates for 2025 earnings, as of this writing. This is an excellent price to pay for a company that should experience steady revenue growth as users continue to spend on its AI tools. Growing scale due to its AI investments should lead to modest margin expansion in the future, bolstering strong earnings growth. Investors can purchase just one share of this industry leader with their $500.
3. Alphabet
Many believe that the growth of AI assistants like ChatGPT poses a significant threat to Alphabet's (GOOG -0.53%) (GOOGL -0.63%) core Google Search business. However, Alphabet is investing heavily in AI to minimize this risk.
AI Overviews at the top of Google Search results have been shown to increase user engagement and satisfaction, according to management. Other AI-driven features like Circle to Search in Android phones and Google Lens are driving search traffic to Search as well.
This is crucial, as generative AI could have a meaningful impact on Google's advertising business in the long run. Google's AI model is called Gemini, and the company is integrating it into nearly every one of its marketing tools. Gemini helps advertisers create and test hundreds of different ads with various copy or images.
Google's AI tools also assist marketers in directing their ad budgets toward more successful ads more quickly, maximizing their spend. Lastly, Google's AI tools can measure conversion utilizing predictive analytics now that many users block direct ad attribution from websites and apps.
Google Cloud continues to hold a prominent position among the major public cloud providers, reaping significant benefits from the surge in investments in AI infrastructure. In the third quarter, Google Cloud's revenue saw a 35% increase, hitting $11.4 billion. This growth also extended to the segment's operating income, which surged to $1.9 billion from $266 million in the previous year. However, there's still room for improvement in boosting its profit margins, as suggested by its competitors' results. This could potentially trigger robust earnings growth over the upcoming years.
As of now, Alphabet shares are priced at 20.3 times the projected 2025 earnings by analysts. The company's potential from AI-driven marketing and investment in Google's cloud infrastructure positions it to maintain a robust earnings growth rate. This growth is expected to be more than enough to justify the current share price for an extended duration.
Analysts anticipate an average yearly growth of 22% for Alphabet's earnings in the next five years. At $500, you have the opportunity to acquire multiple Alphabet shares. This provides various avenues to invest in the future of AI.
- The rising investments in AI have led to a surge in demand for cloud infrastructure, making it an attractive area for financial investment. According to Bloomberg Intelligence, the market for cloud infrastructure for generative AI could reach $470 billion by 2032.
- With the growing importance of AI in various industries, there's an opportunity for investors to diversify their portfolio by investing in companies that are at the forefront of AI development. For instance, Microsoft's early investment in generative AI innovator OpenAI positions it well to benefit from the growth of AI expenditure.