Over the past year, artificial intelligence (AI) has captivated companies and investors, showing the potential to drive the next wave of economic growth.

Among the prospective beneficiaries, a few standout companies seem well positioned to capitalize on the AI boom — and, importantly for investors, still maintain relatively reasonable valuations. Here are three such stocks and a look at how each is integrating generative AI into its business strategy.

1. Alphabet

Some investors fear generative AI could destroy Google Search, the largest segment for Alphabet (GOOG 1.17%) (GOOGL 1.12%), as upstarts like OpenAI’s ChatGPT have taken market share. There is some validity to those concerns, considering research suggests Google has lost nearly 3% of its total market share since ChatGPT was launched in November 2022. Additionally, experts believe the United States Department of Justice could soon ban Google’s longtime deal with Apple, which makes Google Search the default setting on iPhones.

But digging into the numbers, according to Statcounter, a web analytics company, Google Search still makes up 89.3% of the total search globally. The segment continues to deliver for Alphabet, generating $49.3 billion in revenue for Q3 2024, representing a year-over-year increase of 12.2%. Additionally, if the deal falls through with Apple, Alphabet will save an estimated $25 billion annually, which it had been paying to the maker of iPhones.

Alphabet is taking the threat of AI seriously, having spent a staggering $49.3 billion on capital expenditures, most of which has been spent to build out its AI infrastructure, which includes servers and data centers. Google Search users may have already seen how the company has rolled out “AI Overviews,” which summarize search results into short paragraphs. Management claims the new feature reaches more than 1 billion monthly users.

Alphabet’s stock is up nearly 30% year to date and trades at a valuation of 24 times earnings. Notably, its five-year median price-to-earnings ratio is higher at 26.6 times earnings, suggesting the stock is on sale. With $82.3 billion in net cash at its disposal, the company can continue returning capital to shareholders through dividends and share repurchases. Notably, Alphabet initiated its first-ever dividend in 2024 and has repurchased 11% of its outstanding shares over the past five years, increasing existing shareholders’ ownership stake.

2. Meta Platforms

The next tech giant on this list is Meta Platforms (META -1.05%), the parent company of Facebook and Instagram. The stock has soared over 60% in 2024 and recently posted quarterly revenue and net income records. Like Alphabet, Meta issued its first-ever dividend this year, paying a quarterly dividend of $0.50 per share, equating to an annual yield of 0.35%.

Meta is also allocating capital expenditures, with management projecting to spend $38 billion to $40 billion, mainly on building out its AI infrastructure. Management says AI is already transforming the company, with CEO Mark Zuckerberg recently noting, “We’re seeing AI have a positive impact on nearly all aspects of our work — from our core business engagement and monetization to our long-term roadmaps for new services and computing platforms.”

Meta’s financials show that AI could already be making an impact. For Q3 2024, it generated $40.6 billion in revenue and $15.7 billion in net income, representing a 19% and 35% year-over-year increase, respectively.

Moreover, Meta’s operating margin improved from 40% to 43% in the quarter, marking a three-year high, which could indicate how well AI is improving the company’s ability to improve engagement and monetization.

Looking at Meta’s valuation, the stock trades at 28 times trailing earnings, slightly above its five-year median of 27 times earnings. However, with $42 billion in net cash on its balance sheet and improving margins, the stock appears fairly valued.

3. Microsoft

The last company on this list, Microsoft (MSFT -1.07%), is also the one with the largest capital expenditure spend over the trailing 12 months, with $49.5 billion. Bear in mind that figure does not include its estimated $13.8 billion worth of investments in OpenAI since 2019.

GOOGL Capital Expenditures (TTM) data by YCharts

As for how Microsoft is integrating AI, the company is already seeing success across its workflow products. On the company’s most recent quarterly earnings call, CEO Satya Nadella stated the technology is driving a “fundamental change in the business applications market as customers shift from legacy apps to AI-first business processes.” The company claims its AI business is on track to be the fastest-growing business in its history, reaching an annual revenue run rate of $10 billion.

With help from the AI transformation and the recent $69 billion acquisition of Activision Blizzard, Microsoft recently set quarterly records for its top and bottom lines. Specifically, in its fiscal Q1 2025, the company generated $65.6 billion in revenue and $24.7 billion in net income, representing year-over-year growth of 16% and 11%, respectively.

Similar to the other tech giants on this list, Microsoft is using its net cash hoard of $33.3 billion to pay dividends and repurchase its stock. The company recently announced a quarterly dividend hike to $0.83 per share and a new $60 billion share repurchase program.

On a valuation basis, Microsoft trades at 35 times trailing earnings, close to its five-year median of 34 times trailing earnings. Given its fair valuation, combined with its financials and investment in AI, Microsoft is primed for continued growth, making it a compelling choice for long-term investors.