Market Commentary: Top AI Stock To Hold Forever

Sometimes the oldest companies are the best when it comes to pioneering the future. Although history is littered with Blockbusters for each Netflix, a more common trajectory for a stodgy old company is the one IBM took, essentially coasting along but not creating disruptive innovation. Microsoft risked the same fate, until Satya Nadella took over. Now Microsoft is among the most innovative  companies in the world, holding a massive stake in OpenAI and ranks among the top value and growth stocks. So is it a buy?

Key Points

• Microsoft is a leader in the field of artificial intelligence (AI).  Microsoft’s Azure AI Service gives developers access to advanced AI technologies, such as machine learning and natural language processing.
• The company also has rock solid financials and remains a compelling investment opportunity for the long-term investor.

The Microsoft Pivot to SaaS

In 2022, Microsoft captured an impressive 16.8% share of the public cloud services market, thanks in part to its popular Office 365 product suite of cloud-based productivity tools that includes Word, Excel, PowerPoint, and Outlook. But Microsoft’s SaaS journey does not stop there. The company has also seamlessly integrated into several other sectors, such as cybersecurity and enterprise resource planning (ERP).

In the cybersecurity space, Microsoft offers Azure Sentinel, a cloud-native SIEM and SOAR platform. Azure Sentinel helps organizations to detect, investigate, and respond to security threats. In the ERP space, Microsoft offers Dynamics 365, a suite of cloud-based business applications that helps organizations to manage their finances, operations, and customers.

Microsoft’s investments in SaaS have paid off handsomely. The company’s cloud business is growing rapidly, and it is expected to continue to grow in the years to come. With Satya Nadella at the helm, it is well-positioned to capitalize on the continued growth of the SaaS market, and it is likely to remain a major player in this space for many years to come.

But perhaps even more exciting for investors is its potential to capture the AI market.

Microsoft Spearheads AI

Microsoft has invested heavily in AI, and developed a number of innovative products and services that are powered by artificial intelligence.

One of Microsoft’s most significant investments in AI is its acquisition of OpenAI, a non-profit research company that is dedicated to developing safe and beneficial artificial general intelligence. The acquisition gives the company access to OpenAI’s cutting-edge AI research and technology.

Another example of Microsoft’s commitment to AI is the development of Dynamics 365 Copilot, an AI-powered productivity tool that helps users with tasks such as writing emails, summarizing meetings, and managing customer relationships. Although it is still in beta, it has the potential to disrupt the way businesses work.

Satya’s firm is also making AI available to developers through its Azure OpenAI Service. The Azure OpenAI Service gives developers access to advanced language models from OpenAI, such as GPT-3. These language models can be used to create a variety of AI-powered applications, such as chatbots, virtual assistants, and translation tools.

Are Microsoft’s AI Bets Paying Off?

Microsoft’s investments in AI are paying off. The company is in a great spot to capitalize on the growing demand for AI-powered products and services and will likely be a leader in the artificial intelligence market for many years to come.

The company most closely associated with Bill Gates continues to be a global technology leader that has seamlessly integrated its sophisticated solutions into a wide range of applications. For example, its unified communications solutions have become essential by bridging gaps and enabling real-time collaboration across vast distances.

It is also a leader in cybersecurity, with a strong track record of developing solutions that protect businesses from evolving threats. The company is committed to sustainability and corporate social responsibility, with a goal of becoming carbon-negative by 2030.

Financials Remain Strong

Microsoft’s financial performance in the fourth quarter of fiscal year 2023 was strong, with revenue increasing to over $56 billion. The company’s Intelligent Cloud segment, which includes Azure and other cloud services, was the primary driver of growth, with revenue increasing by north of 25%. Microsoft’s Productivity and Business Processes segment also grew by double digit percentage levels, led by strong demand for Office 365.

Yes, the company’s forward PE multiple of 29.7x is also higher than the industry median of 15.3x. But Microsoft’s strong growth prospects and commitment to sustainability make it a good investment for long-term investors.