The troubles that Wall Street endured in 2022 are largely in the rearview mirror, and investors are looking to the future. After losing more than 35% of its value last year, the Nasdaq Composite has come roaring back, gaining 36% so far this year (as of this writing).
History shows there's likely more to come. Going back to 1972 -- the first full year the Nasdaq traded -- in the year following a market recovery, the tech-centric index has gained 19% on average, suggesting the current surge is far from over.
Recent developments in the field of artificial intelligence (AI) have helped fuel the recent rebound, and many believe this secular tailwind is just getting started. One company well positioned to benefit from the trend is Microsoft (MSFT -0.26%), and despite gaining 54% so far this year, there are still plenty of reasons to be bullish.

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Microsoft's "fastest-growing" business
While AI has been around for decades, it's the recent advances in generative AI that have investors most excited. The debut of ChatGPT illustrated the broad and varied use cases for these advanced algorithms, which include drafting and editing emails, conducting internet searches and answering questions, creating original content, and writing and correcting computer code, among many others, and new use cases are being discovered every day.
Microsoft arguably helped start the current AI gold rush with a $13 billion investment in ChatGPT parent OpenAI. Microsoft was also quick to integrate AI into many of the company's most widely used popular products and services, forming the foundation for the next phase of its growth.
One example is Microsoft Copilot, the company's recently introduced AI-powered digital assistant. It works in tandem with many of Microsoft's most popular software-as-a-service (SaaS) products, increasing productivity along the way. The company revealed that 40% of the Fortune 100 companies have deployed Copilot as part of its early access program, and demand remains strong. Soon after its release, CFO Amy Hood said, "The next-generation AI business will be the fastest-growing $10 billion business in our history."
While there's no way to know for sure how lucrative these tools could be, these developments have attracted the attention of Wall Street. Dan Loeb of hedge fund Third Point said Copilot could boost Microsoft's revenue by "$25 billion or more in software sales alone." Evercore ISI analyst Kirk Materne is thinking more broadly, suggesting AI could mean $100 billion in incremental revenue for Microsoft by 2027.
Generative AI is still rolling off the drawing board, so it will likely be years before investors know the full impact, but suffice it to say that Microsoft has already staked a claim in AI.
Azure is gaining on AWS
It's widely acknowledged that cloud infrastructure providers are uniquely positioned to provide AI services to the masses. This includes Microsoft Azure, which is one of the Big Three cloud providers. Microsoft has long trailed industry leader Amazon Web Services (AWS), but there could soon be a new leader.
For Microsoft's fiscal 2024 first quarter (ended Sept. 30), one of the headlines was a standout performance by the company's cloud segment, which took share from its rivals. Azure's Cloud revenue grew 29% year over year, outpacing both Alphabet's Google Cloud and AWS, which grew 22% and 12%, respectively. Perhaps as importantly, Microsoft noted that roughly 3 percentage points of that growth was the result of demand for AI services.
This illustrates just how quickly Microsoft was able to parlay its early moves in AI into financial gains.
Multiple opportunities
While AI and cloud computing are getting all the attention, Microsoft has other opportunities that shouldn't be ignored. The company historically made roughly one-third of its revenue from the more personal computing segment, its worst performer during the downturn. However, the PC market is expected to return to growth next year, which should give the segment a shot in the arm. Plus, Microsoft's SaaS business could get a lift from the improvements resulting from the integration of AI.
Despite its gains so far this year and the wealth of opportunities ahead, Microsoft still offers a reasonable valuation, selling for 35 times earnings and 12 times sales (as of this writing). While that's a slight premium to the overall market, Microsoft stock has consistently outperformed the broader indexes over the long term, illustrating why it's deserving of a premium.