The pace at which artificial intelligence (AI) has become the dominant trend in technology is truly astonishing to see. AI has been part of our daily lives for years, powering everything from online searches to mapping programs and from smart home devices to product and streaming recommendations. Yet, recent developments in generative AI have taken these algorithms to the next level.
At the Microsoft (NASDAQ: MSFT) At the Build Developers conference this week, CEO Satya Nadella spoke about these advances, calling it the “golden age” of AI. He then asked the following rhetorical question: “In a world where we have more and more information about people, places, and things, can computers help us reason, plan, and act more effectively on all that information?” As recent developments have made clear, the answer is a resounding ‘yes’.
The spread of AI will result in windfalls for the companies best positioned to leverage this breakthrough technology. The global AI market was estimated to reach $2.4 trillion by 2023 and is expected to rise to $30.1 trillion over the next decade, according to Expert Market Research.
My portfolio is chock full of AI stocks, but Microsoft is one of the stocks I’m most excited about right now.
Ring the bell at the cash register
Many companies are rapidly adopting AI, but it may well have been Microsoft that started this mad rush. Its $13 billion stake in ChatGPT maker OpenAI gave the company early access to these advanced algorithms, which it quickly integrated into many of its products and services.
The example of these efforts is Microsoft Copilot, the company’s growing suite of AI-powered digital assistants. What started as an experiment on GitHub quickly turned into a full-fledged AI strategy. In addition to Copilots for GitHub and Microsoft 365, there are AI-powered assistants for sales, service, and finance, with more on the drawing board.
Customers pay $30 per user per month for Microsoft 365 Copilot, and the company says adoption has been strong. While it hasn’t shared precise figures, several analysts have calculated that Copilot could be worth as much as $100 billion in annual revenue in the coming years.
Cloudy with a chance of winning
Copilot isn’t the only way Microsoft is playing the AI card to boost its business. While the company has been lagging behind for a long time Amazon Web Services (AWS) in cloud infrastructure, recent moves in AI have helped Microsoft gain ground.
In Microsoft’s Q3 2024 (ended March 31), Azure Cloud gained market share at the expense of the competition, up 31% year-over-year, surpassing AWS and Alphabet‘s Google Cloud, which grew 17% and 28% respectively. Microsoft said AI services “contributed seven points” to Azure’s growth.
Additionally, AWS, Azure and Google Cloud captured 31%, 25% and 10% of global cloud infrastructure spending in the first quarter, respectively, according to market research firm Canalys. If Microsoft can continue to steal market share from the competition, it could eventually become the cloud infrastructure leader.
There are plenty of other options
In 2016, Nadella said that “AI is at the crossroads of [Microsoft’s] It seems like Microsoft set the stage for the coming AI revolution almost a decade ago. That said, the company is making the most of its prescient moves.
An example is the company’s personal computing (PC) segment. The business is cyclical, and the last major upgrade cycle occurred at the height of the pandemic, about four years ago. That was followed by the worst economic downturn in more than a decade, convincing PC owners to keep these devices a little longer.
PC sales have finally started growing again, so it’s no coincidence that Microsoft just unveiled its line of Copilot+ PCs, which come equipped with the company’s AI-powered assistant and handle many AI functions locally. This should help drive what is expected to be a robust demand cycle in the coming years.
Despite posting a 35% gain in the past year, Microsoft’s valuation is still quite reasonable: its sales price is 37 times earnings. While that represents a premium over the multiple of 28 for the S&P500The company’s track record of growth and the breadth of its AI capabilities suggest it is worth a premium.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena has positions at Alphabet, Amazon and Microsoft. The Motley Fool holds positions in and recommends Alphabet, Amazon and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
A Once-in-a-Generation Investment Opportunity: 1 Artificial Intelligence (AI) Growth Stock to Buy Now and Hold for 10 Years was originally published by The Motley Fool
