Microsoft's (MSFT 2.22%) stock price is up a whopping 43% so far in 2023. Investors correctly identified the tech colossus as a powerful force in the artificial intelligence (AI) arena with exciting AI-fueled growth prospects.
Yet even after this impressive performance, significantly more gains likely lie ahead for the AI leader's shareholders. Here are three reasons why Microsoft's stock is still a great buy today.
1. Microsoft has a dominant position in AI
Microsoft's multibillion-dollar investment in ChatGPT creator OpenAI vaulted it to the front of the AI race. The two companies worked together to design and build computing systems to train and run AI models. That work made Microsoft's Azure cloud infrastructure platform a valued partner for businesses seeking to harness the promise of artificial intelligence. "Azure really is the place now to develop and run large transformational AI workloads," Microsoft's cloud and AI chief Scott Guthrie said in March.
Microsoft also moved quickly to integrate AI into its products and services. Just days ago, it unveiled the pricing strategy for its new Microsoft 365 Copilot, which will bring a broad suite of advanced AI features to its popular Word, Excel, and other productivity software. At $30 per month per user, Copilot has the potential to be a significant source of incremental revenue and profit for the tech titan.
By boosting knowledge worker productivity and helping people automate more of their work, Microsoft is well-positioned to capture a leading share of a corporate AI market that could grow to $800 billion over the next decade, according to Wedbush analyst Dan Ives. In turn, Ives believes Microsoft's market capitalization could reach $3 trillion by early 2024, up from roughly $2.5 trillion today.
2. Microsoft has visionary leadership
Since becoming CEO in 2014, Satya Nadella has spearheaded Microsoft's mobile, cloud, and AI efforts. He's a visionary and charismatic leader, and he deserves the recognition he's earned for transforming what was a lumbering giant into the cutting-edge juggernaut it is today. With Nadella at the helm, investors can rest easy with the knowledge that Microsoft is being led by one of the brightest and most respected leaders in the tech industry.
Better still, Microsoft has a deep bench of managerial talent. Chief technology officer Kevin Scott is another particularly impressive leader.
Scott joined Microsoft in 2016 when it acquired the business-focused social media platform LinkedIn. Nadella quickly charged Scott with aligning Microsoft's disparate AI initiatives into a more unified vision, and in 2019 Scott began to oversee all the company's AI research and development efforts. Around that time, Scott became intrigued with OpenAI's use of a machine learning technique called transfer learning, which allowed its models to take the information they gained from one task and use it to complete another. Scott would go on to play a key role in Microsoft's initial investment in the AI start-up back in 2019, as well as the expansion of the two companies' partnership earlier this year.
Nadella and Scott have shown that they can accurately foresee technological trends and position Microsoft -- and its shareholders -- to profit from them.
3. Microsoft's growth story is far from over
Although Microsoft is already a behemoth, Nadella sees plenty of room for expansion still ahead. He's targeting $500 billion in revenue by 2030, up from roughly $200 billion over the trailing 12 months. Nadella thinks that level of sales growth combined with operating margin expansion will enable Microsoft to deliver wealth-building returns to its shareowners of more than 10% annually in the coming years.
Nadella expects Microsoft's cloud business to be a potent growth driver. He wants to claw away market share from industry leader Amazon in the all-important cloud infrastructure segment, where Azure is currently in the No. 2 spot behind Amazon Web Services (AWS).
Bernstein analyst Mark Moerdler believes Microsoft is up for the task. He argues that the tech giant's AI expertise will provide it with a powerful advantage over its rivals. In turn, Moerdler posits that AI could help "Azure surpass AWS' revenue at some point" and "double Microsoft's cloud revenue over time."
