Investing in Tech: The Future of Cloud and AI
As cloud computing and artificial intelligence (AI) continue to thrive, tech giants are positioning themselves for growth. Companies are moving their data from on-premises servers to public cloud platforms that offer better security, scalability, and accessibility. This shift has led to increased development of AI applications that help businesses make informed decisions based on their data.
According to Fortune Business Insights, the cloud computing market is projected to grow at a compound annual growth rate (CAGR) of 16.5% from 2024 to 2032. Meanwhile, Grand View Research estimates that the AI market will expand at a CAGR of 36.6% from 2024 to 2030.
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Numerous tech companies are targeting these growing markets, yet some have weak business models. This article highlights three robust firms poised to benefit from the escalation in cloud and AI services: Microsoft (NASDAQ: MSFT), Datadog (NASDAQ: DDOG), and Oracle (NYSE: ORCL). Here’s a closer look at why they may be worthwhile investments this month.
1. Microsoft
Once viewed as a slow-growth tech behemoth, Microsoft has regained momentum over the last decade with its emphasis on cloud and AI technologies. The company developed Azure into the world’s second-largest cloud infrastructure service while investing in OpenAI to incorporate powerful generative AI tools into its portfolio. Microsoft has also introduced mobile versions of its cloud applications, aiming to enhance accessibility for users on iOS and Android devices.
In its most recent quarter, Microsoft’s cloud revenue soared 21% year over year, contributing 59% of its total revenue. Key growth drivers included Azure, Dynamics, and the 365 productivity suite. The Copilot AI platform, utilizing OpenAI’s technology, has also proven popular, attracting numerous users.
Analysts forecast Microsoft’s revenue and earnings per share (EPS) to grow at a CAGR of 14% from fiscal 2024 (ending last June) to fiscal 2027. Growth will be supported by its cloud and AI segments, the expanding Xbox gaming unit, and a surge in enterprise cloud services as economic conditions improve. Although trading at 31 times its projected earnings may seem high, Microsoft’s leadership in these sectors could justify this premium.
2. Datadog
Datadog’s platform is designed to monitor various computing environments, combining diagnostic information into easy-to-use cloud dashboards. This functionality helps IT professionals identify and resolve issues more efficiently. The company’s new Bits AI generative AI chatbot further enhances this process.
While Datadog’s business matures, it officially turned profitable on a generally accepted accounting principles (GAAP) basis in 2023. Analysts predict a CAGR of 23% for revenue and an impressive 77% for EPS from 2023 to 2026.
Growth is expected as customer accounts, generating a minimum of $100,000 in annual recurring revenue, have nearly quadrupled since 2019. Its dollar-based net retention rate remained in the mid-110s in the last quarter. Although its stock appears expensive at 70 times its projected earnings, there is considerable potential for expansion as more businesses adopt its AI-driven IT solutions.
3. Oracle
Previously seen as a trailing competitor, Oracle has rekindled its growth by shifting its software offerings to the cloud. The company has expanded into the enterprise resource planning (ERP), healthcare IT, and cloud infrastructure industries through significant acquisitions. Over the past three fiscal years, its cloud services revenue has risen by more than 20% annually.
From fiscal 2024 to fiscal 2027, Oracle’s revenue and EPS are anticipated to increase at a CAGR of 12% and 20%, respectively. This growth will be propelled by rising demand for its cloud-based database and ERP services, along with its cloud infrastructure enhancements allowing for more efficient data storage and AI processing.
Even though Oracle’s platform remains smaller than Amazon Web Services (AWS) and Microsoft’s Azure, it has secured influential clients, including Nvidia, Uber Technologies, and ByteDance’s TikTok. Oracle is also developing new tools to support accelerated generative AI applications while continuing to broaden its cloud and AI offerings through acquisitions.
Oracle’s shares trade at 24 times their projected earnings, which appears reasonable given its growth outlook in the cloud and AI fields. While it may not be the most thrilling growth stock, steady progress is likely in the coming years.
Should you invest $1,000 in Microsoft right 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. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Datadog, Microsoft, Nvidia, Oracle, and Uber Technologies. 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
