Investing in Microsoft: A Strategic Move for the Future

Microsoft is currently seeing significant expansion across its range of artificial intelligence products and services.

Microsoft (MSFT 2.12%), along with Apple and Nvidia, stands as one of the few companies valued at over $3 trillion. While Nvidia leads the market in AI chip production, Microsoft is emerging as a key player in AI software development.

The company recently shared its financial outcomes for the first quarter of fiscal 2025 (which concluded on September 30). They reported remarkable growth due to their Copilot AI assistant and various AI cloud services.

For those with extra cash on hand—funds that are not needed for immediate expenses—consider the potential of investing $420 to purchase one share of Microsoft stock, and holding onto it until at least 2030.

The Copilot AI Assistant Is Driving Major Growth

In early 2023, Microsoft publicized a $10 billion investment in OpenAI, the organization behind ChatGPT. Quickly, Microsoft leveraged OpenAI's advanced AI models to create its virtual assistant, Copilot, which can produce text, images, computer code, and address complicated questions across various topics in an instant.

Copilot is freely available for many of Microsoft's leading software products, such as Windows, Bing, and Edge. Additionally, users of the Microsoft 365 platform—including popular tools like Word, PowerPoint, and Excel—can access Copilot for a small additional monthly fee. This represents a substantial potential revenue stream, especially considering that over 400 million 365 seats are currently paid for globally.

As reported for Q1, Microsoft noted that 70% of Fortune 500 companies are utilizing Copilot within the 365 suite. Although the exact number of businesses using it is not disclosed, CEO Satya Nadella highlighted that the daily user count of Copilot more than doubled in the last quarter compared to the previous one.

A significant case is that of Vodafone, which is deploying Copilot for 365 across its personnel—more than 68,000 employees—after trials revealed a time-saving of three hours per employee every week.

Microsoft’s Copilot Studio platform also experienced robust growth during Q1. This platform allows businesses to develop tailored Copilots for specific applications—for instance, one Copilot may help with scheduling meetings on Teams, while another might assist in generating data insights in Excel.

By the end of Q1, over 100,000 organizations had utilized Copilot Studio, doubling from just three months earlier.

Azure Holds Strong with Rapid AI Growth

Microsoft's Azure cloud platform is consistently one of its fastest-growing business segments. It offers a variety of services essential for modern digital operations, ranging from basic data storage to sophisticated software development tools. This platform includes Azure AI, which provides an expanding array of services for businesses to adopt and implement AI technologies.

Through Azure AI, developers can tap into cutting-edge data center capabilities backed by innovative hardware from leading suppliers like Nvidia and Advanced Micro Devices. Notably, Azure was the first major cloud service to launch a system utilizing Nvidia's newest GB200 graphics processing units (GPUs), the foremost technology available for AI tasks.

Azure also gives access to industry-leading large language models (LLMs), including OpenAI's latest offerings. Microsoft reported that usage of its Azure OpenAI platform has more than doubled over the last six months, as businesses build AI-powered digital assistants aimed at enhancing employee productivity.

Overall, Azure’s revenue surged by 33% year-over-year during Q3, with 12 points of that growth directly attributed to AI services, an increase from the eight points noted just the prior quarter. This signifies a consistent acceleration in demand for AI-driven solutions since Microsoft started reporting these figures over a year ago, and the company continues to experience demand for its data center capabilities that surpasses existing supply.

In the first quarter, Microsoft committed $20 billion to capital expenditures, primarily focused on developing AI data center infrastructure and associated technology. This follows an impressive capex total of $55.7 billion for the entire fiscal year of 2024, making it vital for the company to demonstrate returns on this investment, with the acceleration seen in Azure AI growth being a favorable sign.

Microsoft's Investments Might Yield Remarkable Returns by 2030

The potential financial impact of AI could be monumental. According to a forecast from Ark Investment Management, AI has the capacity to contribute $200 trillion to the global economy by 2030 through productivity enhancements among knowledge workers. Cathie Wood, Ark’s Chief Investment Officer, expects AI software firms to create $8 in revenue for every $1 spent on related hardware.

If these projections hold true, Microsoft's extensive investments in AI infrastructure could lead to returns in the hundreds of billions. However, Ark isn’t alone in offering ambitious forecasts for the AI sector:

• PwC estimates AI could add $15.7 trillion to the global economy by 2030.
• McKinsey & Company anticipates AI-driven economic activity could add $13 trillion by 2030.
• Goldman Sachs predicts that AI could contribute approximately $7 trillion to the global economy in the upcoming decade.

Reasons to Consider Buying Microsoft Stock Now

Microsoft has reported an earnings per share (EPS) of $12.12 over the past four quarters, and at its current stock price of $412.05, it is trading at a price-to-earnings (P/E) ratio of 33.9. This represents a slight premium compared to the Nasdaq-100 technology index, which stands at a P/E ratio of 32.3. However, it is one of the lower valuations Microsoft has experienced this year.

It could be suggested that Microsoft merits a premium valuation against the broader tech sector due to its leadership in AI software and its ability to monetize these advancements. Investors purchasing Microsoft shares today may look back in 2030 and consider this moment to have been a fantastic opportunity if AI predictions materialize.

Microsoft, Investing, AI