Earnings season is in full swing. To borrow from ABC’s Wide World of Sports introduction from years ago, we can see “the thrill of victory and the agony of defeat” with companies’ quarterly updates.
Such ups and downs were evident with several tech giants after they announced their quarterly results in recent days. Which is the best artificial intelligence (AI) stock to buy after last week’s big moves: Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Meta Platforms (NASDAQ: META), or Microsoft (NASDAQ: MSFT)?
Two victories, one defeat?
If we scored these three AI leaders based on their stock performances following their earnings updates last week, there would be two big victories and one defeat. The best news came from Google parent Alphabet, with the stock jumping close to 10% after the company announced its first-quarter results on Thursday.
Alphabet’s Q1 revenue rose 15% year over year to $80.5 billion. Earnings soared 57% higher to nearly $23.7 billion. The company’s Search, YouTube, and Google Cloud businesses generated strong growth. Alphabet even pleasantly surprised investors by initiating a dividend for the first time.
Microsoft didn’t wow investors quite as much but still delivered solid results in its fiscal 2024 third quarter. The company reported revenue of $61.9 billion, up 17% year over year. Its earnings jumped 20% year over year to $21.9 billion. AI continued to provide a major tailwind with server products and cloud services revenue increasing 24%.
The big loser of this group last week was Meta. Its stock plunged following the company’s announcement of Q1 results on Wednesday. Meta’s revenue rose 27% year over year to nearly $36.5 billion. Earnings skyrocketed 117% to almost $12.4 billion. Both numbers beat Wall Street estimates.
So what was the problem? During Meta’s Q1earnings call CEO Mark Zuckerberg focused primarily on initiatives that are losing money — AI and the metaverse. The company also increased its full-year guidance for total expenses and capital expenditures, explaining that more spending would be needed for AI and metaverse development.
Three winners
I think Alphabet, Microsoft, and Meta were all winners based on their impressive revenue and earnings growth in the latest quarter. More importantly, I expect all three stocks to be big winners for investors over the long term.
Some worried that generative AI would be a “Google killer.” However, Alphabet CEO Sundar Pichai said in the company’s quarterly call that search usage is increasing among people who use Google’s new AI overviews. He also stated, “We have clear paths to AI monetization through ads and cloud as well as subscriptions.”
Microsoft’s partnership with OpenAI continues to pay off in spades. The number of Microsoft Azure deals of $100 million or more jumped 80% year over year in the recent quarter, according to CEO Satya Nadella. The number of deals of $10 million-plus more than doubled. Microsoft’s Copilot AI technology is boosting sales across the board.
Zuckerberg seemed to expect last week’s sell-off of Meta shares. He said in the company’s Q1 call, “I think it’s worth calling out that we’ve historically seen a lot of volatility in our stock during this phase of our product playbook — where we’re investing in scaling a new product but aren’t yet monetizing it.” However, he added, “Historically, investing to build these new scaled experiences in our apps has been a very good long-term investment for us and for investors who have stuck with us.”
One best pick right now
So which of these three AI stocks is the best pick right now? My vote goes to Meta.
Investors’ negative reaction to Meta’s quarterly update was way overdone, in my opinion. Zuckerberg was exactly right in his comments about the company’s history of investing in new products that weren’t monetized until later. I expect Meta will be successful in monetizing its AI and metaverse products too.
Meta boasts the lowest valuation of the so-called “Magnificent Seven” stocks based on price-to-earnings-to-growth (PEG) ratio. I like (and own) Alphabet, Microsoft, and Meta, but now appears to be a great time to buy Meta on the dip.
Should you invest $1,000 in Meta Platforms right now?
Before you buy stock in Meta Platforms, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Meta Platforms wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
See the 10 stocks
*Stock Advisor returns as of April 22, 2024
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Speights has positions in Alphabet, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
