Historically, the stock market has helped create enormous amounts of generational wealth. However, not all stock investments are created equal.
Investors looking to build lasting generational wealth should choose stocks in companies with strong fundamentals, robust financials and sustainable growth strategies.
Apple, Amazon, Nvidia, Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), TeslaAnd Meta platformsCollectively known as the “Magnificent Seven,” are the seven technology stocks that have delivered impressive returns over the past year. Of these, Microsoft and Alphabet are well-positioned to continue generating robust returns in the years ahead — wealth that can be passed down from generation to generation.
This is why.
Microsoft
Microsoft shares are down nearly 10% from their 52-week high of $468.35 in early July 2024. The stock failed to take off following its fiscal 2024 fourth-quarter earnings results (ended June 30), despite beating revenue and earnings estimates. This was largely due to slower-than-expected growth in its Azure cloud business.
Yet, the long-term growth story of this prominent player in the $5.06 trillion global IT market is intact, thanks to its well-diversified business model and large customer base across verticals and geographies. Azure continues to be the cornerstone of the company’s long-term growth strategy, accounting for a 20% share of the global cloud infrastructure services market in Q2 (ending June 30, 2024), up 3 percentage points from two years ago.
AI workloads are a key growth driver for Azure, accounting for nearly 8 percentage points of the cloud computing business’s year-over-year revenue growth in Q4. Microsoft also noted a 60% year-over-year increase in the number of Azure AI customers to 60,000, as well as an increase in average spend per customer at the end of Q4. Additionally, the number of Azure AI customers using the company’s data and analytics tools also grew 50% year-over-year in Q4.
Microsoft is also seeing increasing adoption of its AI-powered CoPilot assistants across its core offering, with CoPilot customer base growing 60% sequentially and existing enterprise customers significantly increasing usage in Q4. The company’s partnership with ChatGPT developer OpenAI has had a transformative effect on the business, and the increasing monetization of its AI services will be a major tailwind in the coming years.
Microsoft generated net income of $88.1 billion on revenue of $245.1 billion in fiscal year 2024. Microsoft’s cash flow from operating activities was $119 billion in fiscal year 2024, meaning the company has significant resources to continue its AI capex investments in the years ahead.
Given these factors, Microsoft could be an impressive choice for long-term investors due to its strong economic moat, resilient and diversified business model, multiple AI-driven tailwinds, and robust financials.
Alphabet
Alphabet, the digital advertising giant and parent company of Google, YouTube and the Android operating system, reported second-quarter results on July 23. Shares fell despite strong revenues and an earnings beat. Management’s comments about mounting pressure on third-quarter operating margins appear to have unnerved many investors. Shares fell further after a recent Bloomberg report alleged that the U.S. Justice Department is considering breaking up the company for monopolizing the Internet search market through exclusive deals with smartphone makers like Apple and Samsung.
While the looming uncertainty is worrisome, the long-term impact on the stock will be minimal. Google accounts for 91% of the global internet search market. Therefore, even without exclusive deals with mobile phone manufacturers, Google will continue to dominate the internet search market and the U.S. digital advertising market, at least for the next few years. According to Statista Research, Google’s share of U.S. digital advertising revenue is expected to decline from 26.8% in 2023 to 23.9% in 2026. Google is expected to be the largest digital ad spender in the U.S. through 2026.
To combat growing competition from Microsoft’s Bing and AI-powered search engines like Perplexity.ai and OpenAI’s new search engine called SearchGPT, Alphabet is integrating advanced AI and machine learning capabilities into its Google search engine to provide more contextual and relevant results. The company is leveraging its large user base and immense data pool to effectively train its own family of generative AI-based Gemini models. More than 1.5 million developers were using Gemini by the end of Q2.
Alphabet’s Google Cloud business is also gaining momentum, surpassing $10 billion in quarterly revenue for the first time in Q2. The company’s diversified product portfolio has kept it from being overly reliant on just one product or service.
Alphabet is also cash-rich, with $101 billion in cash and marketable securities at the end of Q2, giving it the financial flexibility to invest in AI initiatives. Yet the company trades at just 6.2 times trailing 12-month revenue, far lower than many other AI-driven tech giants. Given its stellar qualities and reasonable valuation, Alphabet appears to be a no-brainer, long-term choice for the savvy investor.
Should You Invest $1,000 in Microsoft Now?
Before you buy Microsoft stock, here are some things to consider:
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, 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. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. 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.
2 “Magnificent Seven” Stocks That Can Create Lasting Generational Wealth was originally published by The Motley Fool
