Both Microsoft (MSFT 1.57%) and Amazon (AMZN 0.89%) have seen their respective cloud computing segments, Azure and Amazon Web Services (AWS), benefit from the initial artificial intelligence (AI) boon as customers use these platforms to build their own AI solutions. Last quarter, Azure revenue climbed 29% year over year, while AWS revenue jumped 19%.
Along with cloud services, both companies are also trying to implement AI into other parts of their businesses to both grow the business segments's top lines as well as improve the bottom line by becoming more efficient.
Let's look at the AI efforts outside of cloud computing for both companies and see if it makes their stocks better buys.
NASDAQ: MSFT
Key Data Points
AI is boosting Microsoft's Copilot efforts
Microsoft's biggest AI innovation outside of Azure was the introduction of different Copilot AI assistants for its various software offerings. The Copilots can help users increase productivity through recommendations and by being able to perform various tasks.
The most successful Copilot for the company in terms of giving a product a sales lift has been the one designed for its developer platform GitHub. This Copilot performs such tasks as making suggestions as developers type or even being able to complete code. The company said the GitHub Copilot was the source of 40% of GitHub's revenue growth this year and that GitHub Copilot is now larger than the entire business when Microsoft acquired it in 2018. More than 90% of the Fortune 100 now use the platform, according to Microsoft.
The company recently introduced a number of improved Copilots for its Microsoft 365 set of productivity tools at an event called "Microsoft 365 Copilot: Wave 2." One of the big introductions at the event was a new feature called Copilot Pages, which lets multiple users collaborate on a shared platform with the assistance of AI.
The company also introduced improved Copilots for Excel, Word, PowerPoint, Teams, and Outlook. Some of the new features include integrating Python into Excel and allowing users to work with the programming language using only natural language. This can help everyday users perform more advanced forecasting, data visualization, and risk analysis without having to learn to code in Python. Meanwhile, the Word Copilot will be able to pull in data from all types of different documents, while Copilot for PowerPoint will help users create presentations using natural language. Copilot in Outlook, meanwhile, can help users prioritize their inboxes.
The company charges users $30 a month for its Microsoft 365 Copilot, and it just announced a deal with Vodafone to provide its 68,000 employees with Copilots. With these new improvements, the company looks set to win even more big deals.
Overall, Copilots are a pretty big opportunity for Microsoft and could help be the next leg of its AI growth.
NASDAQ: AMZN
Key Data Points
Amazon
Amazon is using AI to help its business outside of AWS in a much more subtle way than Microsoft is with its highly visible Copilots. While some of Amazon's AI initiatives are consumer-facing, many are not.
On the consumer-facing side, the company has added such features as AI-generated customer review highlights, which take the user reviews of a product and give an overall summary of what users liked and didn't like about a product. It's also created a new AI-powered shopping assistant called Rufus to make personalized recommendations and help shoppers more easily find what they need. It's even using AI to make clothing sizing charts more accurate and to recommend sizes for a particular item.
Image source: Getty Images.
On the seller side, the company offers a number of AI tools to help improve listings. This includes helping sellers more easily create listing pages by just uploading a picture, using a simple description, or providing a URL to their own website. It now also has AI image generation tools that let sellers see their products with different lifestyle or seasonal themes.
Perhaps more importantly, the company is using AI on the back end of its logistics and warehouse operations to become more efficient. One way it is doing this is by using AI to optimize the routes its drivers use to deliver its packages. Amazon has one of the largest logistics networks in the world, and route optimization can lead to both cost savings with fuel and well as delivering packages more quickly.
The company is also using AI to help forecast demand and improve its supply, both of which can lead to improved sales and cost savings. Meanwhile, one of the more interesting ways Amazon is using AI is in its warehouse, where it is using computer vision and generative AI-trained robots to both more quickly find and handle items as well as better identify if any products are damaged. As more of these robots are added, it creates a more efficient warehouse and leads to cost savings.
For Amazon, these AI initiatives help with both sales and cost savings, although as an e-commerce retailer, sales will still be influenced by the consumer and macro environment. The company is going all in with spending on AI, both at AWS and elsewhere in its business. Historically, it has seen a lot of benefits from its investments over time.
MSFT PE Ratio (Forward 1y) data by YCharts
Is it time to buy these two AI-related stocks?
With Microsoft trading at a forward P/E of 28 and Amazon trading at 32 times next year's analyst estimates, neither stock is in the bargain bin. However, both companies have proven to be industry leaders that are adaptable over time and their stocks have been winners because of that. They are also two of the leading cloud computing companies in the world. With AI becoming one of the biggest technological revolutions ever seen, these are the companies you want to invest in over the long term.
