Artificial intelligence (AI) is an investment opportunity for generations, but you don’t have to take unnecessary risks to benefit from AI. One of the best ways to benefit from the growth of this technology is to invest in the leading cloud service providers.
The cloud market is valued at $297 billion according to Synergy Research and is still growing at a rapid pace. The cloud leaders, including Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG) And Microsoft(NASDAQ: MSFT)delivering returns for their investors that outperform the broader market and should continue this winning streak for many years to come.
If you currently have $500 or more to invest, consider buying at least one share of these elite tech companies.
Alphabet shares have more than doubled in the past five years, but Google’s parent company continues to report solid growth from its advertising and cloud businesses. Shares are up 23% year to date, better than the S&P500.
Many customers choose Google Cloud over the #1 cloud service provider, Amazon Web Services (AWS). Reasons for choosing one cloud provider over another may vary, but a few factors that work in Google Cloud’s favor are tools that allow customers to easily migrate data from their local servers and a more modern user interface. According to Synergy Research, Google Cloud revenue grew 28% year over year to $10.4 billion in the second quarter, outpacing the broader cloud market growth of 22%.
Alphabet continues to ramp up capital investments in its cloud business. The company’s capital expenditures have accelerated to $44 billion over the past four quarters. Google is building more data centers and AI tools to meet rising cloud demand.
Additionally, Google’s Vertex AI platform is winning large organizations, including the US Air Force, that need to build generative AI-powered applications. The engine behind Vertex and other AI services is Gemini, the company’s AI model that powers many of the features in Google Cloud and Google’s consumer products like Search.
Most importantly, Google Cloud’s operating income increased from $395 million in last year’s quarter to more than $1.1 billion in the second quarter of 2024. This shows that Alphabet can make necessary investments in key technologies such as AI while simultaneously can increase margins for the benefit of shareholders.
Alphabet will announce its third quarter financial results on October 29. In the long term, Wall Street expects the company to report double-digit earnings growth. With the stock trading at a reasonable price-to-earnings ratio of 19 based on 2025 earnings estimates, Google investors should expect the stock to reach new highs in the near term and in the coming years.
Microsoft shares have tripled in the past five years, with a gain of 21% through 2024. Like Google, Microsoft offers software products that millions (if not billions) of people use every day, including Windows, which powers 72% of desktop PCs turns. according to Statista.
But the software giant continues to experience its greatest momentum in enterprise cloud services. It is currently the second-largest cloud service provider behind AWS, but Microsoft is quickly closing in on Amazon’s lead. The Microsoft Azure cloud service grew even faster than Google Cloud in the quarter ending in June, with revenue up 29% year over year.
Microsoft benefits from the groundbreaking collaboration with OpenAI, the company behind ChatGPT. OpenAI has made significant improvements to Microsoft’s software offerings, including Azure, where the Azure OpenAI service is now used by most of the Fortune 500.
Microsoft continues to pour billions into more data centers. Coincidentally, Microsoft’s capital expenditures over the past four quarters have been virtually identical to Alphabet’s ($44 billion). The company does this while growing net profit 10% year over year to $22 billion last quarter.
Microsoft’s capital expenditures are up 79% since the end of 2022, compared to 40% for Alphabet. During the latest earnings call, management said the company is laying the foundation to support growing cloud demand for the next decade and beyond. The opportunities in cloud computing and AI are clearly still in their infancy.
Microsoft will announce first-quarter financial results for fiscal 2025 on October 30. But analysts expect earnings to grow 13% year over year. Investors should be well rewarded for holding this stock for the long term.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Ballard has no position in any of the stocks mentioned. 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.
2 Unstoppable Tech Stocks You Can Buy With $500 was originally published by The Motley Fool
