Artificial intelligence (AI) has created a lot of buzz since the start of last year, and rightly so. Generative AI, which represents the cutting edge of these next-generation algorithms, can create original content, including text, videos and images, with just a few simple instructions. Perhaps more importantly, these systems can be used to streamline many time-consuming tasks, thereby increasing productivity. The opportunity to save time and money has many companies wanting to integrate AI into their operations.
One of the biggest winners of the AI revolution so far is Nvidia. The company’s graphics processing units (GPUs) are the gold standard in AI. However, as Nvidia has generated gains of more than 800% since the beginning of last year, investors are scrambling to discover the next wave of stocks benefiting from the rapid adoption of AI. Many believe that the next frontier will be software. Sales of generative AI software could increase 18,647% to $280 billion by 2032, according to Bloomberg Intelligence.
Nvidia will likely continue to reap the rewards from the seeds it sowed more than a decade ago, but another company has positioned itself to profit as the trend toward AI-driven software gains momentum. magnitude.
Microsoft: reinvented for the 21st century
Microsoft (NASDAQ:MSFT) has made a name for itself with its Windows personal computer (PC) operating system and Web Explorer browser. The company cemented its place in technology history with the release of its Office suite of workplace productivity software.
However, over the past decade, Microsoft has transformed and expanded into a number of new markets with the creation of its Teams workplace collaboration software, acquisitions such as Minecraft and Activision Blizzard, and the launch of its “Big Three” cloud infrastructure platform. Azure Cloud.
Microsoft was also among the first to recognize the transformational opportunity represented by generative AI. Its investment and partnership with OpenAI, which began in 2019, gave Microsoft a deep insight into the future potential of AI, working on these algorithms in relative obscurity until early last year.
The fruit of this first foray into AI is Microsoft Copilot, the tech giant’s suite of AI-powered digital assistants. What started as a single tool to help developers write code became the foundation of the company’s AI strategy.
The flagship release is Copilot for Microsoft 365, which is deeply integrated with Microsoft Office, the company’s set of software-as-a-service (SaaS) offerings. Beyond that, Microsoft has developed a variety of additional co-pilots designed for specific lines of business, including sales, service, and finance.
Copilot could be a digital gold mine for Microsoft. The majority of businesses pay $30 per user per month for Copilot. For context, the company offers subscription plans ranging from $12.50 to $57 per user per month for Microsoft 365, so adding Copilot could roughly double the cost of many subscriptions.
Microsoft has so far remained tight-lipped on the details, but several analysts have weighed in, suggesting that Copilot could generate additional revenue of more than $100 billion per year by 2027.
The company is also seeing its cloud infrastructure services improve thanks to AI. During the first calendar quarter, Microsoft’s Azure cloud grew 31% year-over-year, outpacing both Amazon Web Services (AWS) and AlphabetGoogle’s Google Cloud, which grew 17% and 28%, respectively. Management also revealed that AI services “contributed seven points” to Azure’s growth.
In total, Microsoft captured 25% of global cloud infrastructure spending in the quarter, compared to Google Cloud with 10% and AWS with 31%. If current trends continue, Microsoft could eventually become the leading cloud service provider, dethroning AWS.
The proof is in the pudding
Microsoft continues to generate remarkable results, especially for a company of its size. For its fiscal third quarter (ended March 31), revenue climbed 17% year over year to $61.9 billion, while diluted earnings per share jumped 20% to 2.94 dollars.
Despite the huge opportunity ahead and Microsoft’s first-mover advantage, the stock is valued at 37 times forward earnings, which is surprisingly reasonable compared to the huge opportunity.
We’re barely a year into the AI revolution, and yet the excitement about AI is palpable. Microsoft has developed a brilliant strategy to take advantage of the early stages of AI adoption, benefiting shareholders along the way. This is why the stock is a Buy.
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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. Danny Vena holds positions at Alphabet, Amazon, Microsoft and Nvidia. The Motley Fool holds positions and recommends Alphabet, Amazon, 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.
Sales of generative AI software could increase 18,647% by 2032. 1 Unstoppable Artificial Intelligence (AI) Stock to Buy Before (Hint: Not Nvidia) was originally published by The Motley Fool