Microsoft (MSFT 2.12%), Apple, and Nvidia are the only three companies in the world with a valuation of $3 trillion or more. While Nvidia is the undisputed king of artificial intelligence (AI) chips, Microsoft is fast becoming a leader in AI software.
Microsoft just reported its financial results for the fiscal 2025 first quarter (ended Sept. 30), and the company generated incredible growth from its Copilot AI assistant and its AI cloud services.
Here's why investors sitting on spare cash -- money they don't need for immediate expenses -- might want to consider using $420 to buy one Microsoft share, with the intention of holding onto it until 2030 (at least).
At the beginning of 2023, Microsoft announced plans to invest $10 billion in OpenAI, which is the creator of ChatGPT. Microsoft wasted no time using OpenAI's latest AI models to develop its own virtual assistant called Copilot, which is capable of instantly generating text, images, computer code, and even answering complex questions on a variety of topics.
Copilot is available for free on many of Microsoft's flagship software products like Windows, the Bing search engine, and the Edge internet browser. However, paying users of its 365 platform (which includes Word, PowerPoint, Excel, and more) can also use Copilot for an additional monthly subscription fee. This could be an enormous source of revenue for Microsoft in the future because businesses around the world currently pay for over 400 million 365 seats.
As of Q1, Microsoft said 70% of the Fortune 500 companies are using Copilot for 365. While the tech giant doesn't disclose exactly how many businesses have adopted it in total, CEO Satya Nadella said the number of people who use it daily more than doubled during Q1 compared to just three months earlier.
Telecommunications giant Vodafone is rolling out Copilot for 365 to more than 68,000 of its employees after a trial run showed it was saving three hours per person per week.
Microsoft also saw strong growth in its Copilot Studio platform during Q1, which enables businesses to build different Copilots for specific applications. For example, they can create one Copilot for Teams to help schedule meetings and summarize conversations, and one Copilot for 365 to generate data insights in Excel.
More than 100,000 organizations had used Copilot Studio as of the end of Q1, which doubled from just three months earlier.
Microsoft's Azure cloud platform is routinely one of the fastest-growing parts of the entire organization. It provides hundreds of services to businesses all over the world to help them operate in the digital era, from simple data storage to complex software development tools. The platform is also home to Azure AI, which offers a growing suite of services to help businesses develop AI and deploy it into their operations.
Through Azure AI, developers can access state-of-the-art data center computing capacity powered by the latest chips from suppliers like Nvidia and Advanced Micro Devices. In fact, Azure is the first cloud platform to launch a system powered by Nvidia's new Blackwell-based GB200 graphics processing units (GPUs), which are the most advanced in the industry for performing AI inference.
Azure also provides access to the industry's latest large language models (LLMs), including OpenAI's new o1 models, which are its most advanced to date. In fact, Microsoft says usage of its Azure OpenAI platform has more than doubled over the last six months as companies build AI-powered digital assistants to make tens of thousands of their employees more productive.
Overall, the Azure cloud platform grew its revenue by 33% during Q3 compared to the year-ago period. Microsoft said 12 points of that growth came from AI services, specifically, which was up from eight points during the previous quarter three months earlier. That number has accelerated in every single quarter since Microsoft began reporting it more than a year ago, and the company says demand for its data center infrastructure still outstrips supply.
During Q1, Microsoft allocated $20 billion to capital expenditures (capex), most of which went toward AI data center infrastructure and chips. That followed a whopping $55.7 billion in capex spending during the whole of fiscal 2024. Therefore, it's critical that the company shows investors a return on that spending, and the acceleration in Azure AI growth is a very good sign.
AI could be the most significant financial opportunity in a generation. Last year, Ark Investment Management issued a forecast suggesting AI could add $200 trillion to the global economy by 2030 thanks to its ability to boost productivity among knowledge workers. Cathie Wood, who is the Chief Investment Officer at Ark, believes AI software companies will eventually generate $8 in revenue for every $1 they spend on chips.
If Wood is right, the return on Microsoft's substantial investment in AI infrastructure so far could be hundreds of billions of dollars. But Ark isn't the only firm with multitrillion-dollar forecasts for the AI industry:
Microsoft has generated $12.12 in earnings per share over the last four quarters, and based on its stock price of $412.05 as of this writing, it trades at a price-to-earnings (P/E) ratio of 33.9. That's a slight premium to the Nasdaq-100 technology index, which trades at a P/E ratio of 32.3, but it's near the cheapest level the stock has traded at this year:
In my opinion, Microsoft deserves a premium valuation to the rest of the tech sector, given its leadership position in AI software, especially when it comes to monetization. Additionally, investors who buy Microsoft stock today might look back on this moment in 2030 and think it was an absolute bargain if the AI forecasts highlighted above prove to be accurate.