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Meta Platforms (NASDAQ: META) and Microsoft (NASDAQ: MSFT) have enjoyed varying fortunes on the stock market in the past year.

Meta stock has jumped 82% in the past year as compared to the Nasdaq-100 Technology Sector index's return of 37%. Microsoft, meanwhile, has gained just 29%. That seems a bit surprising as Microsoft kicked off the artificial intelligence (AI) wave by partnering with ChatGPT developer OpenAI, and has been quick to deploy AI applications across its portfolio.

Meta has also been integrating AI tools into its family of social media apps and is driving tangible gains for advertisers who are using AI to create, manage, and optimize their ad campaigns. Here's a closer look at the AI prospects of both Meta and Microsoft and which one of these two is worth buying right now.

The case for Meta Platforms

The biggest AI-related revenue opportunity for Meta Platforms lies in the digital advertising market. According to a survey by software-as-a-service provider Kaltura, 69% of marketing departments are paying for AI tools already and another 29% are considering deploying the technology soon.

Not surprisingly, Grand View Research estimates that the adoption of AI in the marketing space could increase at an annual rate of nearly 27% through the end of the decade, generating annual revenue surpassing $82 billion at the end of the forecast period. Meta Platforms offers AI tools to advertisers so they can target the relevant audience and drive greater returns on the ad dollars they spend.

CEO Mark Zuckerberg said on Meta's Aprilearnings conference callthat the revenue generated by its Advantage+ Shopping and Advantage+ App Campaigns "has more than doubled since last year." Additionally, Meta's AI tools are helping advertisers automate some of the steps in the ad campaign creation process.

The good part is that Meta is witnessing an improvement in the adoption of these AI-focused tools by advertisers, which explains why its ad impressions and revenue are increasing nicely. In the first quarter of 2024, Meta's ad impressions were up 20% compared to the year-ago period. There was a 6% year-over-year increase in the average price per ad. As a result, the company's ad revenue increased nearly 27% year over year to $35.6 billion.

Meta's overall revenue was up by a similar figure to $36.4 billion. Given that the ad business accounts for almost all of Meta's top line, the growing adoption of AI in the digital ad market bodes well for the company's future. Meta claims that AI is helping drive a 32% increase in returns on the ad dollar spent by advertisers. So, it won't be surprising to see more advertisers turning to the company's offerings, especially considering that its family of apps has a daily active user base of 3.24 billion.

What's more, catalysts such as AI are expected to drive stronger annual bottom-line growth of 30% for the next five years. That would be a nice acceleration over the 11% earnings growth Meta has clocked in the past five years. So, this tech stock could deliver more upside thanks to AI, which won't be surprising. Deutsche Bank predicts that the company could gain a bigger share of the digital ad market because of this technology.

The case for Microsoft

Microsoft stock may have underperformed the broader tech sector in the past year, but the company is a solid bet on the proliferation of AI. From cloud computing to personal computers (PCs) to gaming, Microsoft has multiple AI-related catalysts that could accelerate its growth in the long run.

For instance, the company's cloud computing market share has started improving thanks to AI. In the first quarter of 2024, Microsoft's cloud market share stood at 25%, up by 2 percentage points from the year-ago period. CEO Satya Nadella credited this improvement to AI when discussing the company's fiscal 2024 third-quarter results in April:

Azure again took share as customers use our platforms and tools to build their own AI solutions. We offer the most diverse selection of AI accelerators, including the latest from Nvidia, AMD, as well as our own first-party silicon. Our AI innovation continues to build on our strategic partnership with OpenAI; more than 65% of the Fortune 500 now use Azure OpenAI service.

It is worth noting that the number of $100 million-plus deals for Microsoft's Azure cloud platform increased a whopping 80% on a year-over-year basis in the previous quarter. Additionally, the number of $10 million-plus deals doubled from the year-ago period. All this bodes well for Microsoft as Fortune Business Insights estimates that the market for cloud-based AI services could grow from $60 billion in 2023 to $398 billion in 2030.

Microsoft is already capitalizing on this lucrative opportunity as its Azure cloud revenue was up 31% year over year in the previous quarter, with AI accounting for 7 percentage points of that growth.

Meanwhile, the emergence of AI-enabled PCs presents another monetization opportunity for Microsoft. The company's Copilot chatbot is now available on 225 million PCs. The company is offering various subscription plans targeted toward personal users (for $20 a month per user), business users, and enterprise customers (both $30 a month per user). The good part is that customers are willing to pay for a Copilot subscription, with the number of GitHub developers on a Copilot subscription increasing 35% quarter over quarter in fiscal Q3 to 1.8 million.

Analysts are expecting Copilot to generate at least $10 billion in annual revenue by next year, but it won't be surprising to see that milestone arriving earlier as the market for AI assistants is expected to see almost 33% annual growth over the next five years, generating annual revenue of $61 billion in 2029 from this year's estimate of $15 billion, as per Mordor Intelligence.

Not surprisingly, Microsoft's earnings growth is forecast to accelerate, thanks to the multibillion-dollar AI opportunities discussed above.

The verdict

Though Microsoft has underperformed Meta in the past year, it remains the more expensive stock. Microsoft trades at 13.5 times sales and 37 times trailing earnings. Meta, on the other hand, has a price-to-sales ratio of 9 and trailing earnings multiple of 27.

It is also worth noting that Meta is growing at a faster pace than Microsoft right now, as the latter's revenue was up 17% in the previous quarter to $62 billion and earnings jumped 20% year over year. As a reminder, Meta's revenue was up 27% in the previous quarter, while its earnings more than doubled on a year-over-year basis to $4.71 per share.

So, Meta looks like the better bet of these two AI stocks based on its current growth rates and valuation. However, Microsoft seems the more diversified bet of the two, which is why investors who are willing to look past its rich valuation can consider buying shares of this tech giant as well.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Meta Platforms, 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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