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Here’s 1 Artificial Intelligence (AI) Stock to Buy in May and Hold Forever
One of the biggest barometers of the artificial intelligence (AI) revolution is Microsoft (NASDAQ:MSFT). Windows developer kicked off the AI craze after considerable investment in OpenAI in January 2023.
OpenAI is the creator of ChatGPT, a popular large language model (LLM) capable of writing essays, producing software code, and even generating images based on text instructions.
Over the past year and a half, Microsoft has integrated ChatGPT functionality across its entire ecosystem – from workplace productivity tools, social media platforms, and cloud computing.
Microsoft recently reported earnings for the third quarter of fiscal 2024, ending March 31. There was a lot of optimism spread throughout the earnings report, and advances in AI were front and center.
Let’s unpack Microsoft’s results and explore why this “Magnificent Seven” member is a great stock to own forever.
Microsoft’s business is firing on all cylinders
Microsoft is an absolute giant. In addition to its main growth engine in Azure cloud computing services, the company also operates in gaming, social media and personal computing.
In the three months ended March 31, Microsoft’s revenue grew 17% year over year to $61.9 billion. As always, all eyes were on Azure – and it did not disappoint. Microsoft Cloud revenue reached $35.1 billion, representing a 23% increase year over year. In the cloud segment, server products and cloud services were the main sources of growth.
MSFT Revenue Chart (Quarterly)
What makes Microsoft such an attractive business is that revenues and profits are rising. By expanding its margins, Microsoft has impressive financial flexibility. At the end of the quarter, the company held $80 billion in cash and cash equivalents on its balance sheet.
Microsoft is aggressively reinvesting its excess profits, and the company’s latest generative AI application is already showing some encouraging signs.
Image source: Getty Images.
Copilot is a hidden gem
During the earnings call, Microsoft CEO Satya Nadella proudly told investors that “Microsoft Copilot and the Copilot stack… are orchestrating a new era of AI transformation.”
Microsoft Copilot is an intelligent assistant that is increasingly integrated across the Microsoft ecosystem. The underlying idea is that in almost every service Microsoft offers, more and more AI-based features are becoming available. This is driving a new wave of productivity across multiple use cases and market sectors for Microsoft users.
In fact, Microsoft had 30,000 Copilot users as of March 31 – a 175% increase quarter over quarter. Microsoft Copilot has penetrated approximately 60% of the Fortune 500 and has customers such as Nvidia, New NordicIt is Amgen.
The story continues
A premium review worth the price
Microsoft currently trades at a forward price/earnings (P/E) of 35.6. This is above many of its mega-cap tech peers and is much larger than the S&P 500Forward P/E of 20.7.
MSFT Total Return Price Chart
The chart should clarify why Microsoft shares trade at a premium. The analysis illustrates Microsoft’s total return over a long-term horizon compared to a group of mega-cap AI stocks and other large technology giants that were once considered some of the most innovative technology businesses.
Microsoft is the best performing stock in this peer group. Furthermore, considering the momentum the company is witnessing thanks to its AI ambitions, I think even more gains are on the horizon.
I think purchasing Microsoft shares now will be a good decision in the long run. The company has a proven track record of generous shareholder returns and has outperformed the competition by a considerable margin.
In some ways, Microsoft reflects the characteristics of a top-tier business, given its steady revenue growth and robust cash flow. And at the same time, the company is still in growth mode.
The combination of reliable top- and bottom-line growth, complemented by a new wave of AI-powered growth, is an extremely rare combination. In my opinion, Microsoft has earned its premium valuation and is a stock that investors can hold forever.
Should you invest $1,000 in Microsoft now?
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Suzanne Frey, an Alphabet executive, 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. Adam Spatacco has positions in Alphabet, Amazon, Apple, Microsoft, Novo Nordisk and Nvidia. The Motley Fool holds positions and recommends Alphabet, Amazon, Apple, Cisco Systems, Microsoft, Nvidia, and Oracle. The Motley Fool recommends Amgen, International Business Machines, and Novo Nordisk and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
A Once-in-a-Generation Investment Opportunity: Here’s an Artificial Intelligence (AI) Stock to Buy in May and Hold Forever was originally published by The Motley Fool