Top Three Companies Poised for Growth in Cloud and AI Markets

The cloud and artificial intelligence (AI) markets have seen rapid expansion over the past decade. Businesses find it increasingly convenient to utilize cloud-based services instead of traditional desktop software, which often requires more on-site computing power, maintenance, and manual updates. By employing AI algorithms, companies can analyze this cloud-based data to make more informed decisions.

Three companies that have notably benefited from these trends are Microsoft (NASDAQ: MSFT), Cloudflare (NYSE: NET), and Five9 (NASDAQ: FIVN). Understanding why these companies are strong cloud and AI investments is essential as they may have the potential for significant growth in the coming decades.

Microsoft’s Transformation and Growth

Microsoft, once a slow-growth tech giant, has undergone a remarkable transformation since Satya Nadella became CEO in 2014. The company has aggressively expanded its cloud ecosystem, shifted focus to mobile apps for iOS and Android, and invested heavily in AI technologies.

By converting its desktop applications to cloud-based services, Microsoft has kept pace with competitors like Amazon and Alphabet‘s Google. Today, Microsoft’s Azure is the world’s second-largest cloud infrastructure platform, following Amazon Web Services (AWS). It also holds a significant stake in OpenAI, the creator of ChatGPT, while integrating its Copilot AI companion into its Windows operating system, Office apps, and cloud-based services.

From fiscal 2014 to fiscal 2024 (ending last June), Microsoft’s revenue grew at a compounded annual growth rate (CAGR) of 11%, with its earnings per share (EPS) rising at a CAGR of 16%. Looking ahead to fiscal 2024 to fiscal 2027, analysts forecast a 14% CAGR for both revenue and EPS, presenting a solid growth outlook for a stock trading at 28 times next year’s earnings.

Although Microsoft faces risks from rising tariffs and trade conflicts that may impact software spending, the long-term growth of the cloud and AI markets is likely to retain customers within its ecosystem.

Cloudflare’s Innovative Edge

Cloudflare is a prominent content delivery network (CDN) provider, which speeds up the delivery of digital content by caching copies on servers located closer to users. Additionally, Cloudflare protects websites from bot attacks through user verification checks.

According to co-founder and COO Michelle Zatlyn, Cloudflare aims to be a “water filtration” system for the internet, safeguarding both websites and their visitors from cyber threats. In 2023, Cloudflare introduced Workers AI, enabling developers to build and deploy AI applications across its edge networks.

With operations in 335 cities across more than 125 countries, Cloudflare handles an astonishing average of 71 million HTTP requests per second. If its services fail, many popular websites and apps would be inaccessible, ensuring ongoing demand. Despite potential global economic challenges tied to tariffs, Cloudflare’s growth prospects remain strong.

Since going public in 2019, Cloudflare’s revenue has increased at a CAGR of 40% from 2020 to 2024. Analysts anticipate a 27% CAGR for revenue growth from 2024 to 2027, with the company expected to turn profitable by the final year. Although the stock trades at 16 times the next year’s sales, it represents a viable option for capitalizing on the cloud and AI market’s expansion.

Five9’s Cloud-Based Customer Support Solutions

Five9 specializes in cloud-based customer support services, assisting companies in managing customer interactions across various channels including voice, chat, email, social media, and mobile apps, leveraging AI-powered chatbots and human agents. The platform serves over 3,000 enterprise and mid-market customers worldwide, managing more than 14 billion call minutes annually.

Five9 strives to replace traditional call centers with its efficient service model, which is tailored to thrive during economic downturns. Businesses may increase their use of Five9’s offerings to expand operations and reduce costs by decreasing reliance on human customer service representatives.

From 2014 to 2024, Five9 recorded a revenue growth rate of 26%. For the period from 2024 to 2027, analysts expect this growth to decelerate to a 10% CAGR, with profitability anticipated this year and EPS projected to grow at a CAGR of 125% over the next two years.

Given these projections, Five9’s stock appears attractively priced at less than twice this year’s sales, providing a promising opportunity to benefit from the long-term growth of the cloud-based contact center market.

Investment Considerations for Microsoft

Before Investing in Microsoft, consider this:

The analyst team at a leading investment advisory recently identified their picks for the ten best stocks to buy, which notably did not include Microsoft. The chosen stocks are expected to yield substantial returns in the coming years.

Historically, companies like Netflix and Nvidia have illustrated the potential for wealth creation when identified early—investing $1,000 at the time of their recommendations yielded significant returns.

Overall, while Microsoft is a leading player in the cloud and AI arenas, potential investors should carefully consider the wider market trends and recent advisories before making a purchase.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.