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The Emerging Dominance of Microsoft in the AI Arena

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While Microsoft (NASDAQ:MSFT) has not been setting investors’ hearts ablaze of late, a closer look reveals a company brimming with potential. Year to date, Microsoft’s stock has soared 13%, modestly outperforming the S&P 500’s 11% increase.

Over the past year, Microsoft’s shares climbed by 46%. This escalation, while commendable, falls short when compared to the meteoric rises of other AI-affiliated companies. Nvidia’s (NASDAQ:NVDA) stock skyrocketed by 225%, and Meta Platforms’ (NASDAQ:META) shares soared by 136% during the same period.

Although Microsoft is a conglomerate beyond AI, it is evident that the advancement of AI technology is set to drive the company’s revenue, profits, and market value going forward.

The Pioneering AI Investments

Microsoft has made substantial investments in AI, notably channeling $10 billion into the renowned OpenAI, the powerhouse behind last year’s AI chatbot sensation. Additionally, Microsoft’s announcement of constructing a colossal data center, potentially necessitating $100 billion, is a remarkable feat. To put this into perspective, Microsoft’s aggregate capital expenditure over the past four years amounts to $104 billion.

The profound data center venture, coupled with the development of an AI supercomputer named “Stargate” slated for a 2028 debut, underscores Microsoft’s unwavering commitment to AI. In February this year, Microsoft ramped up its global AI investments, earmarking $5.60 billion for Europe alone. Concurrently, the company is fervently focused on monetizing this technology to drive sales and profits.

An emblematic instance of this push is Microsoft Copilot, the AI chatbot now offered through a $30 monthly subscription. Tech analyst Dan Ives from Wedbush anticipates that Copilot could boost Microsoft’s revenues by $25 billion to $30 billion by 2025. Riding on the tide of this monetization journey, Bank of America (NYSE:BAC) maintains a “buy” rating and a $480 stock price target, endorsing Microsoft as a “top pick.”

Additional Entrepreneurial Fortitude

Beyond AI, Microsoft’s other business units are gaining momentum and fueling its success. This includes the Xbox division following the lucrative $69 billion acquisition of video game powerhouse Activision Blizzard, along with the flourishing Azure cloud-computing sector. Notably, Azure and other cloud services yielded a robust 30% revenue growth in Microsoft’s Q4 2023 earnings report, surpassing analysts’ 27.7% growth projection.

Presently boasting 53,000 Azure AI clients, with a third joining in the past year, Microsoft anticipates commitments exceeding $1 billion for Azure cloud services in the upcoming fiscal year. As per data from Synergy Research Group, Microsoft’s Azure infrastructure commands a 20% share of the $130 billion global cloud market, positioning it as the world’s second-largest cloud-computing entity after Amazon (NASDAQ:AMZN).

Collectively, Amazon and Microsoft seize 52% of the global cloud market, with cloud computing emerging as a pivotal growth driver for Microsoft.

Embrace MSFT Stock

Having recently surpassed a $3 trillion market capitalization milestone and clinched the title of the world’s largest publicly traded firm, Microsoft is primed for continued growth and gains. Coupled with its astute monetization of AI offerings, encompassing not just AI but also video games, cloud computing, and software, Microsoft remains an eminent player in the technology sector that warrants a spot in every investor’s portfolio. MSFT stock is undoubtedly a sound investment.

Joel Baglole has been a business journalist for 20 years, having previously contributed to esteemed publications such as The Wall Street Journal, The Washington Post, and The Toronto Star, as well as financial platforms including The Motley Fool and Investopedia.

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The post Why Microsoft Stock Is a Super-Smart Bet in the AI Race appeared first on InvestorPlace.

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

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