Artificial intelligence (AI) is the hot growth opportunity that many businesses have been focusing on in 2023. For retirees, however, it may seem like the next big risk, or tech bubble, that's not worth gambling on. Currently, there are many risky AI plays that may simply be looking to capitalize on the new buzzwords, but without a clear vision or strategy on how to be profitable. While all of this is true, there are some suitable investing opportunities within the AI space for retirees to consider that balance both safety and growth.
Two companies heavily involved in enabling AI capabilities -- but aren't risky investments -- are Microsoft (MSFT 0.15%) and Alphabet (GOOG 0.80%) (GOOGL 0.83%). Here's a look why these two stocks are solid opportunities in the AI space for retirees.
1. Microsoft
Microsoft is a stable business that plenty of retirement portfolios hold for the long haul. The software and cloud-computing giant even pays a modest dividend that yields 0.9%. It's not a huge payout, but it can ensure that you're at least generating some recurring income every quarter. Plus, Microsoft has been increasing its dividend payments for years. Last month, it hiked its dividend by 10%.
This is also a company that has strong free cash flow and profits -- two things both retirees and risk-averse dividend investors should seek out in an investment.
MSFT Free Cash Flow (Annual) data by YCharts.
Microsoft's strong profits and cash flow have enabled the company to continue pouring money into its growth. Its $69 billion acquisition of video game company Activision Blizzard is in its final innings and could wrap up this month. Microsoft has also invested $13 billion in ChatGPT maker OpenAI. The company has also been rolling out new AI-enhanced offerings for its Microsoft Office applications, which may lead to significant revenue growth in the future as it is pricing them at $30/month. It has also been ramping up Bing, its search engine, which incorporates AI and even allows users to make AI-generated images.
Overall, there's a plethora of growth potential for Microsoft as it expands its gaming business and dives deeper into AI. This could be one of the big winners from the growing demand in AI. And the good news for retirees is that with a big established brand like Microsoft, you aren't taking on any great risk by adding this stock to your portfolio.
2. Alphabet
Alphabet is another highly profitable, highly successful business that doubles as an attractive AI play. Like Microsoft, Alphabet has demonstrated strong growth in both its earnings and free cash flow in the past decade.
GOOG Free Cash Flow (Annual) data by YCharts.
On the AI front, the company has been developing its own chatbot, Bard, which is a rival to ChatGPT, although it arguably isn't nearly as popular. Additionally the company has been introducing AI into some of its core office applications, including Gmail. It will also charge $30/month for its new, AI-powered features.
Alphabet's search engine Google does have an advantage over Bing, but that could change as the company is in the midst of an antitrust case. That case, however, may not be decided until sometime next year. And if, under the worst-case scenario, Alphabet has to break up, investors may end up owning multiple strong businesses rather than one large one. Either way, it shouldn't create a huge risk to investors. And the company that might stand to benefit the most from that would be Microsoft, giving investors even more of a reason to buy both of these stocks.
For retirees, it's hard to go wrong with these stocks, as they are relatively safe and stable growth stocks to own and both have some promising opportunities ahead with respect to AI.
