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The technology sector is one of the best performing industries so far in 2024, thanks in large part to the booming demand for artificial intelligence (AI).
Not surprisingly, it seems like every tech company is currently trying to position themselves as an AI opportunity. However, there is one company that is emerging as a legitimate frontrunner in the AI marathon Microsoft (NASDAQ: MSFT).
Let’s take a look at how Microsoft is making waves in AI, and explore why now is a good time for long-term investors to pick up shares.
How is Microsoft disrupting AI?
In November 2022, the tech industry witnessed a seismic shift as the world got to know it ChatGPT. It didn’t take long for ChatGPT to reach scale. In January 2023, reports circulated in the media that ChatGPT had more than 100 million users on the platform.
Given its widespread popularity and sophistication great language model technology, it is no coincidence that Microsoft invested $10 billion in ChatGPT’s parent company, OpenAI, in January 2023.
Over the past year and a half, Microsoft has integrated ChatGPT into its entire ecosystem. Although it is still early days, the first financial results since investing in ChatGPT are quite impressive.
Are the investments paying off?
One of the biggest growth opportunities for AI in general is cloud computing. According to Statista, Microsoft currently owns 25% of the global cloud infrastructure market – second only to second place Amazon. In April, Microsoft reported financial results for the third quarter of fiscal 2024. For the period ended March 31, Microsoft generated $26.7 billion in its Intelligent Cloud unit – up 21% year over year.
Within the Intelligent Cloud segment, revenue from Microsoft’s Azure cloud services grew 31% year-over-year. Given the level of competition among cloud infrastructure providers, I am encouraged by Azure’s growth rate. Furthermore, after listening to management’s commentary on the call, investors have reason to believe that much more growth lies ahead.
One of the biggest new products Microsoft has released since integrating ChatGPT into the company is a virtual assistant called CoPilot. According to management, approximately 60% of the Fortune 500 use CoPilot.
The chart below shows that Microsoft’s current price-to-earnings ratio (P/E) and price-to-free-cash-flow (P/FCF) levels are well above their ten-year averages.
While these valuation levels may indicate that Microsoft stock is a bit pricey, I would encourage investors to zoom out and think about the bigger picture.
In less than two years, Microsoft has quickly deployed a brand new AI application across its entire ecosystem. In this way, the company has continued to accelerate its cloud activities while making strong inroads into the world’s largest companies with its new CoPilot assistant.
Investors looking for exposure to AI should consider a position in Microsoft. The company’s ecosystem spans many different end markets, including cloud infrastructure, personal computing, workplace productivity, gaming, social networking and more. All of these areas have the potential to be completely revolutionized by AI.
To me, AI represents an interesting new chapter in Microsoft’s evolution.
The secular tailwinds fueling the broader AI landscape suggest that the technology is here to stay, one way or another. Given that Microsoft has been a dominant force in many areas of the technology spectrum for almost 50 years, I am confident that the investments in ChatGPT will ensure that it will be well-positioned in AI for years to come.
I think Microsoft is a rare breed in that investors can own the stock forever and benefit from the company’s steadfast commitment to innovation and growth. For these reasons, I think investors are best off investing in Microsoft over the longer term and holding onto the stock.
Should You Invest $1,000 in Microsoft Now?
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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. Adam Spatacco has positions in Amazon and Microsoft. The Motley Fool holds and recommends positions in 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 one disclosure policy.
A unique investment opportunity: one spectacular artificial intelligence (AI) stock that you can buy now and hold forever was originally published by The Motley Fool