Want AI Growth With Limited Risk? 3 Smart Stocks for Cautious Investors.
Key Points
AI stocks have driven the overall market higher over the past few years, but they’ve lost momentum in recent weeks.
The long-term AI story still looks bright, though turbulence may continue in the near term.
Artificial intelligence (AI) stocks have delivered astronomical growth to investors in recent years. They've climbed in the double, triple, and even quadruple digits as investors piled in, aiming to invest early and score a win as these companies developed their AI programs. Why has AI caused such excitement? The technology promises to reshape how many things are done -- from factory operations to drug discovery -- and this is very positive for companies' top and bottom lines.
But over the past few months, AI stocks and other growth players have seen their positive momentum slow or even screech to a halt. Even the biggest of names, such as AI chip giant Nvidia, have stumbled. Investors have grown more cautious about buying stocks. This is amid general uncertainty, such as worries about the economy, and as investors question whether AI expectations have gone too far.
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Still, evidence doesn't support the idea of an AI slowdown. Companies from chip designers to cloud providers all speak of soaring demand. And the economic backdrop, while it could weigh on growth stocks temporarily, doesn't change the long-term AI story. This means it's still a great idea to buy and hold onto such players.
And if you want the best of both worlds -- AI growth with limited risk -- check out the following stocks that are smart choices for cautious investors.
Image source: Getty Images.
1. Amazon
Amazon (NASDAQ: AMZN) has gone all in on AI, using the technology across its e-commerce platform and selling AI products and services as part of its cloud business, Amazon Web Services (AWS). So the company is gaining efficiency -- through AI in fulfillment centers -- and helping customers potentially buy more on its platform -- through a shopping assistant. And these are just two examples of AI at work at Amazon.
And the efforts are producing results. For instance, AWS, thanks to demand for capacity, has seen its annual revenue run rate march higher quarter after quarter -- and it most recently reached $142 billion.
Importantly, Amazon is a leader in e-commerce and the No. 1 cloud services provider worldwide, and it's delivered earnings growth over time -- well before the AI boom. So Amazon is well-positioned to continue its progress over the long term.
2. Microsoft
Microsoft (NASDAQ: MSFT) is another market giant you can count on, whether the AI story continues to grow rapidly or slows. The company's Windows operating system and software portfolio can be found worldwide in many locations, from offices to homes -- this is one source of growth. On top of this, Microsoft's cloud services, gaming, and advertising businesses also bring in revenue.
The result is a diversified tech giant with leadership in key areas that is likely to last. For example, it's difficult to imagine major companies that use Microsoft software throughout their operations dismantling everything to turn elsewhere. This offers Microsoft a significant moat, or competitive advantage.
All of this, including a long history of earnings growth, ensures a certain level of stability. On top of this, Microsoft has become a major player in AI, offering products and services through its cloud business and integrating AI in its software -- a key recipe for growth.
3. Apple
Apple (NASDAQ: AAPL) didn't benefit as much as its peers from the earlier wave of AI growth. The company took time to add AI features to its world-famous portfolio of devices -- it only started rolling out Apple Intelligence in the fall of 2024.
So, moving forward, the stock may gain as AI investors rotate out of some of the biggest early AI winners and into fresh AI stories. And the stock also could gain as investors look for a company that's involved in AI but doesn't heavily rely on the technology for growth.
Apple has a solid moat, as customers generally stick with the iPhone, last year's top-selling smartphone worldwide. And the company also has seen services revenue roar higher, reaching records quarter after quarter, and many years of increasing profit. So, with Apple, investors may gain safety -- along with the potential for AI-driven growth.
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Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, and Nvidia and is short shares of Apple. The Motley Fool has a disclosure policy.
