2 Promising AI Stocks to Consider on Market Dips

Artificial intelligence (AI) presents one of the most exciting investment prospects in recent years, possibly even in decades. Amazon's CEO, Andy Jassy, stated, "Generative AI may be the largest technology transformation since the cloud, and perhaps since the internet." This perspective has caught the attention of Wall Street.

Over the past two years, many companies involved in AI and related technologies saw significant growth, but recently, these stocks faced a downturn. Part of this decline is attributed to a China-based company, DeepSeek, which unveiled an AI chatbot with minimal investment, shaking confidence among industry leaders. Additionally, various market challenges, including implications from trade policies, have contributed to this dip.

Despite these setbacks, the current situation might offer an excellent opportunity to buy shares of top AI stocks that have strong potential. Particularly, Apple and Microsoft stand out as solid options within the so-called 'Magnificent Seven.' Both remain compelling buy-and-hold propositions, even as their market valuations approach $3 trillion.

1. Apple

Although Apple was a late entrant into the AI market, it is now making strides by introducing a range of AI capabilities known as Apple Intelligence across its devices and operating systems. Initial reactions from investors and analysts were mixed, as competitors had already begun generating substantial revenues from their AI efforts before Apple’s announcement. The full impact of Apple's entry into the AI sector is still yet to be seen, particularly regarding a potential refresh cycle for the iPhone and its other products.

Apple is known for its methodical approach to launching refined versions of existing technologies, often resulting in major successes. The iPhone, AirPods, and Apple Watch were not the first of their kind, yet they achieved remarkable popularity largely due to Apple's strengths.

First, its robust ecosystem of 2.35 billion active devices provides vast opportunities for monetization. Second, Apple's brand reputation is among the strongest globally, which can enhance the visibility of its AI initiatives. Even if its offerings are not entirely original, consumer interest may still spike thanks to Apple's trusted name.

Apart from AI, Apple continues to explore various growth avenues. Its services segment supports over a billion paid subscriptions, including those in promising industries like fintech. As the high-margin services branch expands, it is poised to positively impact Apple's bottom line.

Furthermore, Apple represents a reliable income stock, having raised its dividend by 92% in the last decade with a conservative cash payout ratio of just 14%. While shares have slipped by 12% this year, the stock remains appealing for long-term investors, especially for those who choose to reinvest dividends for greater returns.

2. Microsoft

Years ago, Microsoft recognized the lucrative potential of AI and made a significant investment in OpenAI, the firm behind ChatGPT. Currently, it provides a variety of AI-driven services through its cloud computing division. Microsoft Azure has been a vital growth engine for the company, with AI contributing to its success. For the second quarter of its fiscal year 2025, ending December 31, Microsoft reported revenues of $69.6 billion—a 12% rise from the previous year. Azure’s revenues grew even more impressively, climbing 31% compared to the same quarter last year.

Microsoft’s AI sector is now operating with an annual run rate exceeding $13 billion. While this figure seems small relative to Microsoft's overall revenue, the AI sector saw a remarkable 175% year-over-year increase this quarter. Given that the AI industry is still in its nascent stages—as highlighted by Amazon's CEO—it promises to drive growth for Microsoft in the foreseeable future. However, the company has additional factors working to its advantage.

Microsoft continues to lead the computer operating system market and maintains a strong presence in the gaming and productivity software segments. Its productivity tools are essential for millions of businesses and benefit from significant switching costs for customers. Additionally, Microsoft's brand is well-established, and it consistently provides dividends, which have increased by nearly 168% in the past decade, with a cash payout ratio below 30%. For long-term investors, Microsoft offers both growth and income opportunities, even amid a 6% drop this year.

John Mackey, former CEO of Whole Foods Market, which is now part of Amazon, is a member of the board of directors for The Motley Fool. Prosper Junior Bakiny holds positions in Amazon. The Motley Fool has investments in and recommends Amazon, Apple, and Microsoft. The Motley Fool also recommends certain options related to Microsoft. Please refer to their disclosure policy for more details.

AI, Stocks, Investment