Microsoft’s AI-Led Momentum: 5 Reasons to Invest Now

October 30, 2023

Microsoft stock

Ever thought about where the future of tech is headed? As the digital landscape evolves, there is one giant leading the charge, blending innovation with unmatched stability. Dive in to discover why Microsoft Corporation (NASDAQ: MSFT) might just be the investment opportunity of the decade and the five compelling reasons that set it apart.

1. Azure’s AI-driven growth

Azure, Microsoft’s cloud computing powerhouse, has exhibited a remarkable growth trajectory, reaccelerating with significant contributions from Artificial Intelligence (AI)-enabled services. The forward-looking projections indicate a consistent growth rate of 26-27%, solidifying its position in the cloud market.

2. Solid financial performance

Microsoft’s Q1 2024 earnings speak volumes. In Q1 alone, Microsoft recorded a revenue of US$56.5 billion, comfortably surpassing consensus estimates, representing a 13% year-on-year (yoy) growth. Their financial health is further underscored by a gross margin of 71.2% and an operating margin of 47.6%. Additionally, the company’s free cash flow touched US$20.7 billion, and they reported a GAAP earnings per share (EPS) of US$2.99, reaffirming their position as a financial powerhouse in the tech industry.

3. Key business segments thrive

Beyond Azure, Microsoft’s core business segments have been firing on all cylinders. The Office Commercial suite and Xbox content and services notably exceeded market expectations. In particular, the gaming segment received a significant boost with the successful launch of Starfield in September, reinforcing Xbox’s position in the gaming community.

4. Balanced business dynamics with a glance towards the future

Microsoft’s well-diversified portfolio ensures that even if one segment faces challenges, others can compensate. While LinkedIn and advertising segments reported in-line growth or slight surges, the company’s strategic acquisition of Activision Blizzard Inc, and the ongoing AI developments are expected to bring some volatility in its earnings.

However, Microsoft views these as short-term dynamics, with a long-term focus on consistent growth and expansion. As Microsoft releases the M365 Copilot into general availability, the market is abuzz with discussions about its potential impact. M365 Copilot is a new AI-powered productivity tool that was launched by Microsoft and priced at US$30 per month. It represents a significant addition to Microsoft’s suite of offerings. While the company acknowledged that selling to enterprises and ensuring wide-scale adoption is a gradual process, they remain optimistic. By ensuring businesses realise the product’s tangible benefits over time, Microsoft aims to solidify its hold in the enterprise solutions segment.

5. Promising guidance by management

The management has guided that revenue for Q2 will rest between US$60.4-61.4 billion. Each of Microsoft’s segments, from Productivity and Business Processes to Intelligent Cloud and More Personal Computing, showcases an upward growth trend.

Proxy to the rise of Artificial Intelligence

As AI becomes a bigger part of our digital world, Microsoft is leading the way. Microsoft’s forward-thinking approach, rooted in AI innovation and strategic growth, paints a promising picture for the future. The company is among the first to put AI features into its products and services. For investors looking for a blend of stability and exponential growth, Microsoft emerges as a compelling choice in the tech investment arena. Don’t miss out on the opportunity to ride this wave of tech evolution.

Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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