Better Dirt Cheap AI Growth Buy: Meta vs Microsoft

The words "dirt cheap" and "artificial intelligence (AI) stock" don't seem to go together. This is because the surge in AI stocks over the past couple of years has pushed many of them to high valuations -- and some stocks that aren't even involved in AI have followed as investors broaden their buys across growth players that may benefit from a brighter economic and spending environment.

But even against this backdrop, you still can find reasonably priced AI stocks. And I'll even point out two dirt cheap players. These aren't struggling young companies but instead industry leaders with long track records of positive earnings performance -- and a strong position in the AI market, which may open the door to a new era of growth.

I'm talking about Meta Platforms (NASDAQ: META) and Microsoft (NASDAQ: MSFT). These companies, members of the Magnificent Seven tech stocks that led market gains in recent years, offer investors a bargain price and a ticket to explosive growth. They both make great additions to your portfolio right now. But if you could buy only one, which one should you choose? Let's find out.

Image source: Getty Images.

The case for Meta Platforms

Meta is best known for something used by billions of people around the world: its social media apps. More than 3.5 billion people globally use at least one -- Facebook, Messenger, Instagram, or WhatsApp -- daily. And as advertisers pay to reach us on these platforms, the apps have resulted in billion-dollar earnings.

The tech giant has made such progress here that, since 2024, it also pays a dividend to shareholders. So, Meta has the financial strength to reward shareholders and invest in growth. In recent years, this investment has revolved around AI. Meta has built out data centers, developed its own large language model, and more -- and the company is putting these tools to work to improve its apps and revamp the advertising experience. Eventually, they may lead to innovations and other revenue streams too.

Meanwhile, thanks to the ad business, Meta continues to generate significant growth, and that's why the stock looks particularly cheap at 22x forward earnings estimates.

The case for Microsoft

You probably know Microsoft well for something you might use every day: its world-class software. But Microsoft generates revenue from many sources, including this software, a booming cloud business, and even through advertising. I'll focus on cloud right here, as this is how Microsoft fits into the AI space.

Through the cloud business, Microsoft offers a variety of AI products and services to customers -- from certain in-house developed items like chips to high-end chips from leader Nvidia, and a wide range of systems to advance AI projects. Demand for capacity has been high, prompting Microsoft to invest and build out infrastructure. In recent days, the stock has slipped as some investors hoped to see greater revenue gains from the cloud business in the latest quarter.

Though investment in buildout and revenue growth may not march in lockstep, the long-term picture remains bright. As a cloud leader, Microsoft is well-positioned to benefit from demand as the AI story unfolds.

Microsoft stock today trades for 24x forward earnings estimates, its lowest in at least three years.

MSFT PE Ratio (Forward) data by YCharts

Better buy right now: Meta or Microsoft?

As I mentioned earlier, both of these stocks make solid additions to a growth portfolio. These companies have strong businesses that you can count on for earnings gains quarter after quarter -- and on top of this, they both are likely to benefit from the AI boom.

Meanwhile, Meta and Microsoft stock are trading at dirt cheap valuations, making them smart choices for growth and value investors. But if you could only buy one, I would go for Microsoft, and here's why.

Meta has traded around today's valuation -- and even lower -- over the past few years. And even after a recent fantastic earnings report, valuation didn't soar. So, we might expect a certain level of valuation stability, offering us time to get in on Meta at reasonable levels.

Microsoft generally has traded at higher levels over the past few years, as you can see in the chart above. So, today's level represents a rather rare opportunity. It's also important to note that Microsoft already is generating significant revenue growth from its AI investments. All of this means now is the perfect moment to snap up shares of this tech giant.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.