3 Things About Microsoft That Smart Investors Know
Microsoft (NASDAQ: MSFT) built itself into a tech behemoth over the years, becoming a dominant player in several categories of office and personal software. The company produces the industry standard for productivity software with its Office programs and retains a decade-long 70%-plus market share in operating systems with Windows. Microsoft's Azure is the second-largest cloud platform in the world by market share at 23%, trailing only Amazon Web Services' 32% share. Given this strong showing elsewhere, it's not a surprise that the company's software expertise gives it an edge in artificial intelligence (AI).
Microsoft share prices are up 41% since Jan. 1 almost entirely on news of its latest efforts to grow its AI-related offerings. The tech giant's prospects in the burgeoning industry make now an excellent time to learn more about the company and potentially invest in its stock.
Here are three things about Microsoft that smart investors know.
1. Microsoft has a jump on the competition when it comes to AI
Microsoft may have made one of the best business decisions in its 48-year history in 2019 when it invested $1 billion in OpenAI, the developer behind ChatGPT and the company that triggered the current boom in AI interest. The collaboration bolstered Microsoft's position in the industry, granting it an exclusive license on multiple OpenAI models, including GPT-4, which is capable of producing human-like dialogue.
Unsurprisingly, ChatGPT's success prompted Microsoft to invest a further $10 billion in OpenAI this year while also integrating the start-up's technology across its product lineup. So far, Microsoft has brought AI upgrades to homegrown programs, such as its Office productivity suite, search engine Bing, and cloud service Azure.
According to Grand View Research, the AI market is expected to expand at a compound annual growth rate (CAGR) of 37% through 2030. Meanwhile, Microsoft's powerful software brands and partnership with OpenAI provide it with the tools to help it better compete with companies like Amazon and Alphabet and become the go-to for anyone requiring AI services.
2. Microsoft expanded its partnership with AMD
Microsoft has formed a close relationship with chipmaker Advanced Micro Devices (NASDAQ: AMD) over the years, and the chip designer proved to be a useful ally. AMD's chips power Microsoft's Xbox Series X|S game consoles, its line of Surface laptops, and its cloud platform Azure. And according to a recent Bloomberg report, Microsoft is now supporting AMD's AI chip expansion by providing financial and engineering resources.
As a leading software developer, a partnership with one of the best chipmakers only strengthens the argument for Microsoft's stock. If the company can procure chips designed especially for its AI workloads, it could become unstoppable among competitors. Meanwhile, its other businesses are continuing to benefit from the collaboration.
3. Microsoft stock is one of the most reliable picks around
An economic downturn in 2022 caused a dramatic sell-off of stocks across the tech industry. The challenging year highlighted the stability of countless businesses, with Microsoft proving its resilience. The chart below illustrates how the company experienced the lowest stock decline among some of the biggest names in tech last year.
Data by YCharts.
Microsoft is home to a thoroughly diverse business spanning industries such as cloud computing, gaming, productivity software, operating systems, and even social media. As a result, the company can lean on different parts of its business that still do well amid short-term headwinds to any one part of its operations.
For instance, Microsoft reported an 18% increase in revenue and a 19% rise in operating income in fiscal 2022 despite weaker-than-expected sales in its "more personal computing" segment. The boosted earnings were primarily owed to its cloud revenue, climbing 25% and hitting $75 billion.
Microsoft's stock price is up 232% in the last five years, about 909% over the last decade. The company's dominance across several areas of tech gives it a potent position in the sector and makes it a great long-term stock investment.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon.com, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
