2 Natural Artificial Intelligence (AI) Stocks You Can Buy Right Now for $600

According to McKinsey & Company, 72% of companies worldwide have adopted artificial intelligence (AI) in at least one business function. This is up from 50% just two years ago, showing how quickly this technology is spreading across the corporate sector.

Many key service providers, such as cybersecurity providers and cloud computing platforms, have also extensively integrated AI to help them serve their business customers more effectively. Palo Alto Networks (PANW 0.82%) And alphabet (GOOG -0.41%) (GOOGL -0.39%) are two great examples.

Both companies are relying heavily on AI to reduce costs, deliver better products and create new opportunities to generate revenue. For this reason, investors who have over $600 left over may want to use it to buy one share of Palo Alto Networks and one share of Alphabet.

Image source: Getty Images.

1. Palo Alto Networks: A leader in AI-powered cybersecurity

Palo Alto Networks is the largest cybersecurity company in the world. The company's product portfolio spans three core platforms: cloud security, network security and security operations. The company integrates AI into each of these platforms to provide businesses with fast, accurate and automated protection.

The company launched an AI-powered security operations solution called Cortex XSIAM about two years ago. It allows companies to automate incident response and resolution, and Palo Alto says half of customers using XSIAM have already reduced their mean time to resolution (MTTR) to under 10 minutes from several days earlier.

In fiscal year 2024 (ended July 31), XSIAM's customer base quadrupled compared to the previous year and bookings more than doubled to $500 million. These results clearly demonstrate how quickly the demand for automated, AI-powered cybersecurity solutions is growing.

Palo Alto is also introducing new products to protect companies that use AI. Customers of network security platform Prisma Access can now turn on a new tool called AI Access Security, which assigns a risk score to third-party AI applications (like OpenAI's ChatGPT). It ensures that employees deploy these apps safely and allows managers to completely block certain AI programs if they pose a threat.

The cybersecurity industry has a history of fragmentation. Vendors often specialized in certain products, forcing companies to build their security stack from multiple vendors. Palo Alto is driving a shift toward “platformization,” meaning the company wants to be the one-stop shop for all cybersecurity needs within an organization. Why? Because customers who use all three platforms have a 40 times higher lifetime value than those who only use one.

To convince customers to abandon their existing providers, Palo Alto offers them fee-free periods for its products, resulting in a temporary slowdown in overall sales growth. The company generated total revenue of $8 billion in fiscal 2024, up just 16% from fiscal 2023 – much slower than the 25% growth the previous year.

But beneath the surface, there's a strong trend that proves it's paying off. Palo Alto's annual recurring revenue from its next-generation security (platformization) customers increased 43% to $4.2 billion in the final quarter of fiscal 2024. The company expects this number to be more than triple will rise to $15 billion by 2030 as the company expects 3,500 of its top 5,000 customers to adopt a platform approach to cybersecurity by then.

Palo Alto stock is trading near a record high, but with this potential growth in the pipeline, it could be a fantastic buy in the long term.

Image source: Alphabet.

2. Alphabet: Developing AI on multiple fronts

About a year ago, investors were concerned that Alphabet would lag behind startups like OpenAI in the AI ​​competition. However, the tech company is now at the forefront, deploying unique AI solutions in Google Search, Google Cloud and even its self-driving vehicle subsidiary Waymo.

Google Cloud offers a portfolio of services that help companies deploy AI. It offers a data center infrastructure operated by Nvidiais a graphics processing unit (GPU) that developers can use to create their own AI models. Alphabet has even developed its own chips to differentiate itself from other cloud providers. The company recently launched its sixth-generation tensor processing chip (TPU) called Trillium, which delivers almost five times the peak computing power of the previous generation, so the company is making rapid progress.

Developers can also access more than 130 pre-built Large Language Models (LLMs) through Google Cloud to accelerate the creation of functional AI software applications such as chatbots and virtual assistants. These models include the Gemini series, which Alphabet developed itself.

Google Cloud was Alphabet's fastest-growing segment in the second quarter of 2024 (ended June 30). It generated record revenue of $10.3 billion, up 29% from the same period last year. This growth could accelerate as AI adoption continues to increase across the enterprise sector.

However, Google search remains the group's largest source of income. It's getting its own AI makeover with a new feature called “AI Overviews” that uses text, images, and links to third-party sites to provide a complete response to queries. In other words, overviews save users from having to scour websites for answers to their questions, a typical (and sometimes annoying) part of traditional Google searches.

Alphabet has already stated that links embedded in digests receive more clicks than the same links in traditional Google search results, so this AI feature could become a major driver of advertising revenue in the future. But for users who prefer a pure chatbot experience (like ChatGPT offers), Alphabet's Gemini is also available in this format.

Alphabet stock currently trades at a price-to-earnings (P/E) ratio of just 23.4, meaning it is cheaper than any other major tech giant with a valuation of $1 trillion or more. The company is facing regulatory issues that could lead to the collapse of the entire organization, making investors nervous. But prominent Wall Street analysts think that's an unlikely worst-case outcome, and it will take time Years regardless of whether it is fought in court.

As a result, Alphabet's AI projects are likely to move full steam ahead for the foreseeable future, and that makes the company's stock incredibly attractive at its current price.