Microsoft (NASDAQ: MSFT), 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).

The Copilot AI assistant is generating explosive growth

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.

Image source: Getty Images.

Azure remained strong, led by accelerating AI growth

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.

See also  Insightful Analysis of Top-Quality Stocks for Long-Term Investment Quality Over Quantity: Investing in Top-Performing Stocks

As we evaluate the midway mark of 2024, the sage analysts at Bank of America (BofA) present a curated selection of top-tier companies - the cream of the crop, if you will - for discerning investors to mull over heading into the third quarter. These prized entities flaunt robust fundamentals within their respective sectors and flaunt a sumptuous earnings track record, coupled with promising growth forecasts.

#1: Advanced Micro Devices - A Silicon Valley Gem

Nestled in the heart of California, Advanced Micro Devices (AMD) stands tall as a colossus in the semiconductor realm, crafting state-of-the-art computer processors and graphic cards catering to diverse markets. Famed for their AI-centric chips underpinning gaming, PCs, and data solutions, AMD transcends hardware augmentation by fostering synergies with software maestros, researchers, and industry behemoths. While often considered a runner-up to Nvidia in the AI chip dominion, AMD's more budget-friendly alternative packs quite a wallop, reflected in its robust $259 billion market valuation.

Following a tempestuous 2022, witnessing AMD's stock nosedive by a staggering 60%, the firm staged a heroic resurgence in 2023, soaring by over 100% on the wings of stellar earnings. The upward trajectory persists into this year, with a commendable 10% uptick in share value. Trading at 48 times forward earnings, a bargain compared to its peer Nvidia (NVDA), AMD remains poised for exponential growth, embodying substantial potential for investors to reap capital appreciation.

www.barchart.com

In the realm of sales growth, AMD's ascent is nothing short of meteoric, catapulting from $6.7 billion in 2019 to a staggering $22.6 billion last year, driven by the insatiable hunger for AI chips. The initial quarter of this year showcased revenue scaling to $5.4 billion, marking a 2.2% year-over-year uptick, aligning with a net income surge to $123 million, effecting a complete about-face from the previous year's loss. These robust financials bear testament to AMD's indomitable growth narrative.

Riding high on a legacy of avant-garde AI-imbued chips, AMD's forthcoming MI350 series, anticipated to debut in 2025, threatens to revolutionize the AI inference landscape with a projected 35-fold surge in performance. Meanwhile, the MI400 series, slated for 2026, is primed to deploy a cutting-edge "Next" CDNA architecture challenging Nvidia's R-Series platforms.

The recent rollout of the AMD Radeon RX 7600 XT graphics card heralds a new dawn for AI workload memory specifications, complemented by the impending release of the game-changing next-generation Ryzen CPU hinged on AMD's 8000 Zen 5 architecture. These strategic maneuvers underpin AMD's meteoric trajectory in the semiconductor domain.

#2: Shopify - The E-Commerce Maestro

Hailing from Ottawa, Shopify (SHOP) emerges as a preeminent e-commerce juggernaut renowned for its innovative, user-centric platform, facilitating a seamless route for users to erect, tailor, and expand their virtual storefronts. Owing to its avant-garde tools and services spanning logistics, payments, and marketing, Shopify prides itself on its customer-centric ethos propelling it towards sustained growth as the e-commerce landscape evolves.

Valued at a princely $85.5 billion by market cap, Shopify's shares witnessed a modest 2.2% uptick over the past year. Mirroring a phoenix-like revival last month, the company marked a 17% resurgence from its late-May troughs, leveraging substantial revenue and Gross Merchandise Volume (GMV) growth in the process.

www.barchart.com

In the first quarter of 2024, Shopify unveiled a stellar earnings report, eclipsing analysts' prognostications on all fronts. Boasting a revenue surge to $1.86 billion, a notable 23% climb from the previous year's tally, the platform's Gross Merchandise Volume (GMV) - a pivotal metric - beheld a concurrent 23% swell to reach $60.9 billion.

Despite incurring a net loss of 21 cents per share, a deviation from its 5 cents per share net income a year prior, Shopify managed to showcase adjusted earnings per share of 20 cents, outstripping analyst estimates by a commendable 18%.

Projections for Shopify remain sanguine, underpinned by the burgeoning adoption of e-commerce. The company anticipates a dizzying 144% EPS surge this year, maintaining a trajectory of vibrant growth.

Exploring the Growth Trajectories of Top Tech Stocks in Fiscal 2025

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.

Microsoft’s capex could pay off massively by 2030

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:

• PwC believes AI could add $15.7 trillion to the global economy by 2030.
• McKinsey & Company predicts AI could deliver $13 trillion in additional economic activity by 2030.
• Goldman Sachs thinks AI could create $7 trillion worth of economic activity in the coming decade.

Why Microsoft stock is a buy now

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:

MSFT PE Ratio data by YCharts

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.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $22,469!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $42,271!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $411,970!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of November 4, 2024

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Goldman Sachs Group, Microsoft, and Nvidia. The Motley Fool 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.