Given Microsoft’s (NASDAQ:MSFT) stock multiple, huge opportunities and the extremely effective management of its CEO, Satya Nadella, I expect MSFT stock to continue to outperform the market over the longer term. Consequently, I view the shares as a Buy for investors looking for exposure to Big Tech and AI.
MSFT’s Cloud Business Is Gaining Market Share
The entire cloud infrastructure sector benefited last quarter from increased spending on “generative AI technology and services,” John Dinsdale, Chief Analyst at Synergy Research Group told The Channel Co.
But Azure grew significantly faster than its peers, as its share of the overall cloud sector rose by almost two percentage points versus Q4 of 2022 to 24%. The revenue of the firm’s “intelligent cloud” unit, which features Azure, jumped 19% year-over-year in Q4 to $25.9 billion.
Given MSFT’s strength in AI services, I believe that the unit can continue to expand by similar rates going forward, providing MSFT stock with a huge, positive catalyst.
Expanding the Use of Microsoft 365
Microsoft’s ability to significantly expand the use of its Microsoft 365 cloud software offering should meaningfully lift Microsoft’s financial results and MSFT stock going forward. Both of those businesses should be helped considerably by the increasing demand among companies and governments for IT security systems.
On March 7, Jared Spataro, MSFT’s Corporate Vice President of Modern Work & Business Applications told Morgan Stanley that the company could benefit from getting Microsoft 365 into the hands of more frontline workers such as sales people and warehouse employees. There are 2 billion of those employees globally, and many of them could be helped by using Teams, MSFT’s collaboration and communication software, to connect with their employers’ “digital infrastructure,” Spataro stated. Those employees’ firms could also benefit in many cases by equipping them with 365’s security offerings, he indicated.
Further, the tech giant can move the needle by selling more Microsoft 365 licenses in emerging markets, Spataro reported.
Finally, the firm is successfully convincing more businesses to adopt the most expensive version of 365, called E5, primarily because of its security features, the executive noted. But since the penetration of E5 is rather low, the firm believes that it can generate significantly more revenue by convincing more businesses to adopt it.
Selling More Licenses for Microsoft Copilot
MSFT released its AI assistant, Microsoft Copilot, late last year. According to Spatoro, 70% of Copilot users report that it’s making them more productive. And among “typical information worker task people,” Copilot increases the speed with which they complete their tasks by “almost 30%.” Also noteworthy is that the product can save users as much as ten hours per month, according to the executive.
Unlike competing products, Copilot can write summaries of specific parts of meetings, while its ability to summarize emails is proving to be very helpful for its users, Spatoro noted.
Finally, the company is selling Microsoft Copilot for Security which uses AI to “detect cyberthreats” and enhance firms’ ability to respond to cyberattacks very quickly. Given companies’ fear of being victimized by costly cyberattacks, I expect the demand for Microsoft Copilot for Security to be very strong.
Nadella Is a Huge Asset for Microsoft
In the 2010s, Nadella was able to identify before most others that cloud infrastructure was going to become a huge market, and he successfully built Azure into a powerhouse.
Years later, he saw before most others that AI was the “next big thing,” and he has left the firm very well-positioned to get a gigantic boost from that technology.
Given these points, I’m very confident in his ability to lead the firm in the right direction going forward.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
