Wall Street has grown particularly bullish about Microsoft (MSFT -0.82%) this year, with its stock up 44% since Jan. 1. The company has impressed investors by getting a head start in artificial intelligence (AI) and inching closer to closing a historic deal to acquire video game company Activision Blizzard.
The tech giant has a long history of consistent long-term growth, proven by its position as the second-most-valuable company in the world by market cap.
Microsoft's dominance in software has paved a path for it to expand to multiple high-growth industries, including cloud computing, video games, AI, productivity software, and more.
The company has achieved more than most in the nearly 50 years since its founding. However, the innovative nature of its business suggests there's plenty of room ahead to continue expanding.
Here's why it's not too late to buy Microsoft stock.
Rising higher in a $385 billion industry
On Jan. 18, 2022, Microsoft announced its intention to purchase one of the world's biggest video game developers, the creator of the popular franchise Call of Duty, Activision Blizzard. The Windows company revealed the transaction was priced at $95 per share, or $69 billion. The deal would catapult Microsoft to be the third-largest video game company, behind only Tencent and Sony.
Considering the video game market is projected to hit $385 billion this year and expand at a compound annual growth rate (CAGR) of 8%, the acquisition could prove lucrative for Microsoft.
The deal has yet to be completed after being held up by regulatory hearings worldwide. However, there appears to be light at the end of the tunnel despite more than a year of uncertainty about whether the purchase would succeed. Out of the world's three most crucial regulators, the E.U. and the U.S. have approved the deal. Meanwhile, Microsoft and Activision are currently restructuring their agreement to appease U.K. regulators, which could see the purchase complete in a matter of weeks or even days.
Microsoft's Xbox has become one of the world's most recognizable game brands and revolutionized how consumers buy new titles with its subscription service, Xbox Game Pass. Activision could attract more gamers to Microsoft's consoles and services, bolstering revenue for the long term.
A significant advantage in the artificial intelligence market
All eyes have been on artificial intelligence this year, with the market expected to grow at a CAGR of 37% through 2030. As a result, Microsoft's investment of $1 billion in ChatGPT developer OpenAI back in 2019 appears to be the forward-thinking move of the decade. This partnership gave Microsoft a massive head start in the sector, allowing it to procure exclusive licenses on powerful AI models.
Microsoft has so far used its advantage in the market to introduce AI upgrades across its product lineup. Office programs like Excel and Word now offer AI features, while its search engine, Bing, has ChatGPT-like capabilities. Microsoft's cloud platform, Azure, is also quickly expanding its AI service catalog and providing full access to ChatGPT.
With offerings like Windows, Office, and Microsoft 365, the company became a crucial part of the success of countless businesses around the globe. Many companies have come to rely on Microsoft's products, strengthening its chance of becoming the go-to for anyone seeking AI services. Its OpenAI models and brand recognition could boost it to the top of the market, granting massive revenue gains over the long term.
Microsoft's stock has climbed 229% in the last five years. Meanwhile, revenue gained 58% and operating income rose 94% in the same period. The financial figures are impressive compared to the most valuable company, Apple, as Microsoft has outperformed it on both fronts, as seen in the table below.
Data by YCharts
Microsoft may enjoy a top spot in the tech industry, but its consistent growth over the past five years and its recent developments in AI and gaming indicate it's not done yet. It's not too late to profit from the long-term potential of Microsoft's stock.
