This Artificial Intelligence Stock Looks Like a Steal at Today's Prices

Artificial intelligence (AI) stocks have marched higher in recent years as investors, seeking to get in early on the next major game changer in technology, bought them hand over fist. The momentum has continued, though in recent weeks concerns about a possible AI bubble have pushed some of these players lower -- and decreased valuations too.

It's important to remember that plenty of evidence suggests the long-term AI growth story remains solidly intact. Companies from top AI chip designer Nvidia to cloud giant Amazon have reported soaring demand for their products and services and delivered strong revenue growth. On top of this, analysts predict that today's billion-dollar AI market will reach a value of more than $2 trillion by early next decade.

All of this means it's a great idea to pick up potential AI winners now, on the dip. And one AI stock in particular looks like a steal at today's prices. Let's consider this top AI player to buy now.

Image source: Getty Images.

A stock for cautious and aggressive investors

The company I'm referring to is a great choice for both cautious investors as well as more aggressive investors looking for growth. It's a well-established giant with a long track record of earnings gains, yet it's perfectly positioned to experience a new wave of growth thanks to its commitment to AI. I'm talking about software powerhouse Microsoft (NASDAQ: MSFT).

As mentioned, Microsoft has generated years of growth, making it a player that investors can approach with confidence.

MSFT Revenue (Annual) data by YCharts

Investors also will appreciate the company's dividend payments and share repurchases -- in the recent quarter, these resulted in more than $10 billion returned to shareholders. An important point here is that, in any market environment, Microsoft investors benefit to some degree as they continue to collect dividends.

Meanwhile, growth investors will like the leadership Microsoft is building in the area of AI and the fact that the technology already is boosting the company's revenue. The recent quarterly update illustrates my point, with Azure and other cloud services revenue soaring 40%.

Microsoft's investment in OpenAI -- it's invested $13 billion in the AI research lab -- also has delivered growth, and this should continue. As part of a restructuring of the companies' partnership, OpenAI has agreed to buy an incremental $250 billion in Azure services.

The AI infrastructure buildout

Microsoft also is set to benefit from the AI infrastructure buildout that's expected to ramp up from now through the next five years. The company, based on demand that it's observed, plans to increase its AI capacity by 80% during this fiscal year and double its data center presence over two years. Though this involves investment, the need for this compute capacity could result in explosive growth for Microsoft down the road.

Meanwhile, Microsoft's variety of revenue streams, from computing to cloud and advertising, and its general financial strength offer it the ability to pursue AI and continue to increase earnings.

Now, let's take a look at the company's valuation. Microsoft stock today trades for 30x forward earnings estimates, down from more than 36x just a few months ago. This makes Microsoft the second cheapest of the Magnificent Seven tech stocks that have driven stock market gains over the past few years. (Meta Platforms is the least expensive by this metric, trading for 24x forward earnings estimates.)

Microsoft is a steal at this valuation for a few reasons. It's a company with a fantastic moat, or competitive advantage -- from its Windows platform to Azure offerings, it's difficult to imagine another player unseating this giant. Also, as I noted above, the company offers investors both the stability of a well-established company and the opportunity for significant growth ahead due to its AI investments.

All of this makes this stock a bargain at the current valuation, and one both cautious and aggressive investors may buy on the dip.

Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Microsoft, and Nvidia. 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.