2 Magnificent AI Stocks to Consider Buying on Recent Dips

Artificial intelligence (AI) is viewed as one of the most promising investment opportunities of our time, possibly in years or even decades. Amazon CEO Andy Jassy has stated, "Generative AI may be the largest technology transformation since the cloud, which is itself still evolving, and perhaps even greater than the internet." This sentiment has caught the attention of investors on Wall Street.

In the past couple of years, numerous AI and tech-adjacent companies have shown impressive growth. However, they recently faced a downturn due to specific industry challenges. One significant event was when DeepSeek, a startup based in China, unveiled an advanced AI chatbot with fewer financial resources than leading companies, creating disruption in the market. Additionally, broader economic pressures, including ongoing trade disputes, have impacted various sectors.

Despite these challenges, this recent decline in stock prices offers a potential opportunity for investors to acquire shares in top AI companies at discounted rates, particularly those with strong growth prospects. Two prime examples are Apple and Microsoft, both of which are part of the so-called "Magnificent Seven" and remain compelling options for buy-and-hold investors, even with their substantial market capitalizations nearing $3 trillion.

1. Apple

Apple is somewhat of a late entrant in the AI space. The company has recently announced plans to introduce various AI features under the brand name Apple Intelligence in its latest devices and software updates. By entering this market, Apple aims to catch up to competitors that are already generating significant revenue from AI initiatives. However, the initial reception from investors has been mixed, and it's uncertain how these new features will influence sales of products such as the iPhone and other devices.

One of Apple's strengths is its vast ecosystem, which includes around 2.35 billion active devices, offering multiple monetization possibilities. Furthermore, Apple enjoys one of the strongest brand images globally, which can help boost interest in its AI offerings. While some of Apple's AI strategies may not be entirely original, the company's reputation can drive substantial attention and adoption.

In addition, Apple continues to expand its services segment, which already has over a billion paid subscribers. Many of these subscription services are in growing sectors such as fintech, presenting excellent long-term growth potential. As the company's services division grows and contributes increasingly to profits, it promises a positive impact on overall financial performance.

Moreover, Apple is recognized as a solid income stock. The company has increased its dividend by an impressive 92% over the last decade, maintaining a conservative cash payout ratio of 14%. Despite the recent 12% decline in Apple's stock value this year, it continues to be an attractive option for long-term investors, especially those who choose to reinvest their dividends for potentially higher returns.

2. Microsoft

Microsoft's foresight in recognizing the potential of AI resulted in an early investment in OpenAI, the company behind ChatGPT. This strategic decision has enabled Microsoft to offer a comprehensive range of services via its cloud computing platform, Microsoft Azure. Azure has significantly contributed to Microsoft's growth, with recent quarterly revenues reflecting a 12% increase compared to last year, and an impressive 31% rise in revenue just from Azure.

Currently, Microsoft's AI business boasts an annual run rate exceeding $13 billion, marking a substantial growth of 175% year-on-year. This figure may appear modest compared to Microsoft's overall revenues, but it underscores the significant potential for AI as the industry continues to develop. The company is still in the early phases of harnessing AI, as indicated by industry leaders like Jassy, suggesting a promising outlook ahead.

Furthermore, Microsoft maintains its position as a leading player in the operating systems market and has a strong foothold in gaming and productivity software, benefiting from high customer loyalty. Its reputation, coupled with a robust dividend that has increased by almost 168% over the last decade (with a cash payout ratio just below 30%), presents a compelling mix of growth and income for long-term investors, despite a 6% drop in stock value this year.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Prosper Junior Bakiny has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Apple, 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.

AI, Stocks, Investment