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Joey Frenette

Apple and Spotify: 2 Music Streaming AI Stocks to Scoop Up in August

The artificial intelligence (AI) revolution is underway, and it's already made a lot of money for investors who recognized its potential early in the game. With shares of AI frontrunners like Nvidia (NVDA) doubling up many times over in a matter of months, it's not hard to see why so many investors want to stay in the tech scene, despite the potential for further interest rate increases.

With so many technology companies committed to investing in their AI capabilities, investors shouldn't narrow their focus on the few AI winners that have been leading the pack in recent quarters. Arguably, investors should at least be equal-weight in the mega-cap tech heroes of the so-called “Magnificent Seven” to benefit from the continued rise of AI. At the same time, investors should also seek value in areas of the market where the long-term benefits of incorporating AI tech aren't yet fully recognized.

Indeed, Nvidia stands out as one of the AI plays of the present. After such a historic ascent, though, I'm starting to think the opportunity over at Nvidia has come and gone. For investors who'd rather focus on what comes next, I do believe Apple (AAPL) and Spotify (SPOT) stand out as tech firms with underappreciated AI potential. Coincidentally, both tech companies are bitter rivals in the music streaming market, which could evolve as generative AI makes its mark.

Apple

Apple is the gadget maker whose shares corrected violently following a quarterly earnings report that showed iPhone sales missing the mark. Though the tech titan is no longer worth $3 trillion following the latest slump, I still think it's a mistake to give up on a company that could rise up to become one of the market's biggest AI innovators over the next decade. 

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Apple typically isn't a stock that comes up in the AI conversation, at least not to the extent of its competitors in the “Magnificent Seven.” Indeed, to say that Apple's AI assistant Siri isn't at the level of ChatGPT would be a colossal understatement. Despite the lack of jaw-dropping AI announcements relative to other tech companies - and the current state of Siri, which some folks, including Microsoft (MSFT) top boss Satya Nadella, may consider as “dumb as a rock,” I still view Apple as a company that has managed a lot of innovation on the AI front.

Sure, Apple doesn't blast every AI feature it comes up with on the megaphone. It doesn't have to gather a crowd of excited investors! It's Apple, the world's largest company. If anything, I'm sure Apple would rather its stock price not skyrocket into the stratosphere, given its propensity to buy back considerable sums of its own shares.

And earlier this month, Apple quietly launched its Discovery station on Apple Music to outdo its top rival, Spotify. As Apple leverages AI to better cater to its service users, I do think Apple could continue to tilt the tables further on its side.

Spotify

Spotify is another company that's investing quite a bit in AI technologies to improve the experience for its customers, as the company has faced rising competition in the music streaming industry in recent years. Fortunately, many loyal Spotify users stand by the company's impressive music discovery algorithms. With a treasure trove of data on its users, I think it's getting tougher by the day for competitors to convince a Spotify premium user to switch.

Spotify is down significantly in the past month, after it reported second-quarter results on July 25th. However, I think this drop is short-sighted and this is a buy the dip opportunity.

Looking ahead, AI could take the Swedish music streamer into new frontiers. Spotify recently announced plans to expand its AI-enhanced DJ feature across 50 countries. It's an intriguing new feature that could draw plenty of interest - though whether it's enough to cause Apple Music users to jump ship remains another question.

In the meantime, I like where Spotify is headed when it comes to AI. Earlier this year, the company quietly scooped up a text-to-speech AI startup called Sonantic. Indeed, such an acquisition could help turn an AI DJ into a remarkable success.

The Bottom Line

Apple and Spotify are music streaming rivals that seem to be leveraging the power of AI to improve and add to their premium services. With shares having retreated from their recent highs alongside the Nasdaq 100 Index ($IUXX), I'd be a buyer on the dip.

On the date of publication, Joey Frenette had a position in: AAPL . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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