After enduring its worst plunge since 2008, the stock market has staged an extraordinary recovery in 2023, with each of the major market indexes soaring more than 20% from their recent lows -- and the year is far from over. This has caused some Wall Street pundits to announce the beginning of a new bull market, at least by that measure.
Yet even as some businesses have already shaken off the events of the past couple of years, others haven't been so fortunate. As an example, the personal computing (PC) industry remains mired deep in the red, as PC shipments last year hit their lowest level since 2008, according to market intelligence provider IDC.
Despite an otherwise robust performance, Microsoft (MSFT 0.36%) continues to feel the pinch of lower consumer spending, but there are suggestions that the PC market could finally rebound. While that would be a welcome development for the company, there are plenty of other reasons to buy Microsoft stock before this bull market begins in earnest.
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"Unprecedented expansion"
That's how IDC described the PC market during the early days of the pandemic, as working from home, widespread lockdowns, and strong adoption of computer games drove demand for computers not seen in years.
However, a saturated market and the onset of economic challenges combined to bring that growth to a screaming halt. The average PC has a lifespan of about three years, so IDC expects growth to stabilize, with shipment volumes reaching pre-pandemic levels at some point over the next year.
During Microsoft's fiscal 2023, ended June 30, revenue in the more personal computing segment, which includes the Windows operating systems, personal devices, search and news advertising, and gaming, declined to $54.7 billion, down 9%, and offsetting gains from its other business segments. A recovery in the PC market will remove that headwind from Microsoft's results, which could propel the stock higher.
AI first
Microsoft is at least partially responsible for kicking off the current artificial intelligence (AI) revolution. The company was among the first the recognize the potential implications of generative AI, making a $13 billion investment in OpenAI soon after the start-up released ChatGPT.
Since then, Microsoft has infused AI into a broad cross-section of its products and services, and the impact on its financial results could be significant. Billionaire Dan Loeb of hedge fund Third Point posits that Microsoft's AI-assisted Office Copilot could increase the company's revenue by "$25 billion or more in software sales alone."
There are still plenty of as-yet undiscovered ways for Microsoft to profit from AI, limited only to the company's imagination.
NASDAQ: MSFT
Key Data Points
Head in the clouds
Another potential growth driver is Microsoft's Azure Cloud. Microsoft has long been the No. 2 cloud infrastructure provider, according to data supplied by Canalys, but its growth continues to outpace that of industry leader Amazon Web Services. If this continues, Microsoft could eventually take the crown.
The company could leverage its AI expertise to attract converts to its cloud solutions, which will be rife with productivity-enhancing potential. Microsoft recently announced a host of AI-fueled upgrades and the availability of Bing Chat for Enterprise -- its AI-powered search bot. Last month, CFO Amy Hood said the "next generation AI business will be the fastest growing $10 billion business in our history."
Much of that growth will be delivered by Microsoft's Azure Cloud.
Hand over fist
Investors who buy Microsoft stock now are getting a lot for their money. The company offers strong exposure to software-as-a-service (SaaS) and cloud computing, with AI thrown in for good measure. Add to that the expected rebound in the PC industry, and you can see the growth opportunities begin to mount.
Yet for all that potential, Microsoft stock is still relatively cheap, selling for just 11 times sales and 9 times next year's sales, which I submit is a bargain when stacked against the company's growth potential.
For those reasons and more, I believe investors should be buying Microsoft stock hand over fist with plans to hold it forever.
