You can make a fortune on the stock market if you can consistently identify companies with a competitive advantage that go on to take large shares of quickly expanding markets.
Let’s examine Microsoft (MSFT 1.97%) to see if the software behemoth qualifies.
The argument for buying Microsoft stock
Microsoft is a market leader in both artificial intelligence (AI) and cloud computing, two of the most important technological developments in existence today. In the upcoming years, both of these should contribute to the tech titan’s development.
Microsoft made news in late January when it disclosed a multibillion-dollar investment in OpenAI, the renowned research facility responsible for the enormously well-liked ChatGPT AI-powered application. It didn’t take long for Microsoft to incorporate OpenAI’s technology into its Microsoft Teams communication system, and the company is allegedly working to give its Office productivity suite ChatGPT-like functionality. These AI improvements should increase the utility of these tools for users, allowing Microsoft to gradually raise prices and increase earnings.
Microsoft may have an even more exciting chance for growth in the internet search space. According to analysts at investment bank Jefferies, CEO Satya Nadella aims to use AI to overtake search engine market leader Alphabet (GOOGL 1.81%) (GOOG 1.99%) in a market worth more than $200 billion.
In order to achieve this, Microsoft recently unveiled an AI-powered version of its Bing search engine, claiming that it can give more pertinent and comprehensive solutions than Google currently does through a ChatGPT-like conversational experience. Although Microsoft may be able to steal a sizable portion of Google’s search consumers thanks to ChatGPT, Google is developing its own AI features to protect its market share.
However, the cloud is probably where Microsoft will find its greatest and most exciting growth potential. Microsoft’s Azure was chosen as ChatGPT’s sole cloud computing service provider as part of its collaboration with OpenAI. Since Microsoft has made significant investments in its AI infrastructure, many other businesses are probably going to follow OpenAI’s example and create their AI applications on the Azure platform.
Risks to be thought of by buyers
Although Microsoft’s long-term prospects seem promising, the near future might be a little bumpy. Due to worries that the economy may enter a recession in the upcoming months, many companies are postponing their technological investments. Therefore, investors should be prepared for a temporary slowdown in Microsoft’s development in the upcoming quarters.
Increased competition may also make it more difficult to experience development. Amazon (AMZN -0.04%), like Alphabet in search, is a strong competitor in the cloud sector. Amazon is making significant investments in Intelligence technology, just like Microsoft.
Hugging Face, a top tool for developing machine learning algorithms, and Amazon Web Services (AWS) recently signed a partnership agreement. Hugging Face’s preferred cloud provider will be AWS, which will also make its impressive array of AI tools accessible to the developer community of the tech start-up, which is gradually growing.
Investors who are thinking about investing in Microsoft shouldn’t ignore the risks presented by its rivals. The AI and cloud industries are expected to be worth more than $1 trillion combined by the end of the decade. These are sizable markets, and many winners will surely exist there. Microsoft is very likely to be one of them, in part because of its alliance with OpenAI and its established place as a top supplier of cloud computing services.
A reasonable assessment
An intriguing profit chance is being presented to long-term investors by the current unstable economic climate. Microsoft’s shares have dropped more than 20% from their 52-week highs as a result of a general stock market downturn. Its share price is currently less than 23 times the estimated profits per share for the fiscal year 2024. That’s a reasonable price to pay for an elite company that could reasonably increase its profits by double-digit percentages well into the next decade, driven by the growing adoption of AI and cloud services.
So, is it wise to purchase Microsoft stock?
Microsoft is a fantastic investment to think about making right now if you’re looking for a method to benefit from the enormous potential of artificial intelligence and cloud computing.