One of the big long-term trends of the past year has been artificial intelligence (AI). The AI market is projected to reach $305.9 billion in 2024 and is expected to grow to $738.8 billion by 2030.
This market expansion will provide multi-year tailwinds for companies developing AI technology.This includes technical veterans. international office machine (IBM 0.82%) and microsoft (MSFT -0.32%). Demand for his AI products from both companies has driven up their stock prices over the past year.
IBM stock hit a 52-week low of $120.55 last May and hit a high of $196.90 this year. Meanwhile, Microsoft stock rose from a 52-week low of $245.61 in March of last year to a high of $420.82 on February 9.
But if you had to choose only one investment, which one would you choose?
Why invest in IBM?
IBM has been working on AI since the 1950s, long before Bill Gates and Paul Allen founded Microsoft in 1975. IBM’s newest AI platform, watsonx, debuted early in the third quarter of last year. Adoption increased rapidly.
Big Blue’s Watsonks book in the fourth quarter was about double what it was in the third quarter. The company’s AI success helped drive a 4% year-over-year increase in revenue to $17.4 billion in the fourth quarter.
Thanks to the rapid adoption of watsonx, Big Blue’s data and AI division recorded 5% year-over-year revenue growth in 2023. An example of IBM’s AI technology in action is when Sevilla Football Club used his WatsonX to analyze soccer players across thousands of scouting reports. To decide who to sign.
In addition to this exciting technology, another strength in IBM’s AI arsenal is its army of more than 20,000 consultants dedicated to artificial intelligence. These will help Big Blue’s client develop and implement his AI strategy.
“We are now the only provider of both the technology stack and consulting services for deploying and managing generative AI,” CEO Arvind Krishna said on the fourth quarter earnings call. IBM’s consulting division had fourth-quarter sales of $5 billion, up 6% from a year earlier.
For Microsoft
Microsoft CEO Satya Nadella sees AI as “the next big wave of computing.” That’s why the company is working hard to become a leader in the AI race.
As a result, Microsoft has become a multibillion-dollar investor in OpenAI, the creator of ChatGPT, and has incorporated AI technology into a wide range of products. As Nadella explained during a recent earnings call, “By deploying AI at every layer of our technology stack, we are winning new customers and driving new benefits and productivity gains. .”
For example, in the fiscal second quarter ended Dec. 31, Microsoft’s AI software development tool GitHub Copilot had more than 1 million subscribers, up 30% quarter-over-quarter from the first quarter.
And Microsoft’s AI approach has led to increased revenue. The company’s second-quarter revenue was $62 billion, up 18% from a year ago.
Thanks to AI, Microsoft seems to be on the verge of a new wave of success. This AI benefit follows years of revenue growth from the company’s move to cloud computing when Nadella took over as CEO a decade ago.
Data by YCharts.
Microsoft’s Azure platform enabled this move to cloud computing and continues to grow with the addition of AI to Azure. The platform’s second-quarter revenue increased 30% year-over-year.
Choosing Microsoft or IBM?
Microsoft and IBM offer powerful AI products, so investing in both companies is ideal. But before choosing just one of these tech powerhouses, there are several factors to consider.
IBM boasts a more attractive dividend, currently yielding more than 3% compared to Microsoft’s less than 1%. Additionally, IBM’s free cash flow (FCF) for the fourth quarter was $6.1 billion, an improvement from his $5.2 billion a year ago. This strengthens the company’s ability to finance dividend payments, resulting in 28 consecutive years of increased dividends.
But Microsoft has many different businesses, including digital advertising and the ubiquitous Windows operating system. This allows the company to diversify its income. For example, the company’s video games division saw a 61% year-over-year increase in revenue in the second quarter, thanks to the acquisition of Activision Blizzard.
These factors, combined with its AI success, make Microsoft a better investment than IBM. Microsoft stock recently retreated from its 52-week high, so now is a good time to take advantage of the price drop and buy the stock.
Robert Izquierdo has held positions at International Business Machines and Microsoft. The Motley Fool has a role in and recommends Microsoft. The Motley Fool recommends International Business Machines and recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.
