Investors have piled into artificial intelligence (AI) over the last three years, as the advances in generative AI make practically everyone optimistic about its potential to positively affect financial results.
Some stocks have seen their prices balloon, leaving investors who are just getting started on building a portfolio feel like they might have missed the boat. But even if you only have $400 to invest, there are still plenty of opportunities. This AI leader looks like a no-brainer buy right now, and you can pick up shares for under $500.
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A (tech) giant opportunity for investors
Shares of Microsoft (MSFT 1.05%) sold off after the company's most recent earnings report, but smart investors should consider it an opportunity to buy shares on the cheap.
The big reason for the sell-off stems from rising capital expenditures (capex) related to its AI data center construction. The company spent $37.5 billion on capex last quarter, more than analysts were expecting.
The company's growth in Azure, its cloud computing segment, performed in line with expectations with 39% growth, but investors were expecting higher revenue growth to go along with higher capex. Nonetheless, management says demand continues to outstrip supply.
The increased capex will likely weigh on the company's profit margin as depreciation expense climbs. Management says two-thirds of its spending is on short-lived assets, so that depreciation will hit quickly.
NASDAQ: MSFT
Key Data Points
But the long-term outlook remains extremely positive for Microsoft. Its remaining performance obligations climbed to $625 billion, up 110% year over year. About $250 billion of that came from a new deal with OpenAI, but management said its backlog would have grown 28% without the deal.
OpenAI now accounts for 45% of that backlog, putting significant customer-concentration risk in those numbers. Even discounting OpenAI's commitments gives Microsoft a huge runway, though.
The software business is also performing well. The company appears to have been caught up in the software stock sell-off fueled by fears that AI will displace the need for many enterprise software applications. That hasn't shown up in Microsoft's results, though, with its Productivity and Business Processes segment up 14% year over year on a constant-currency basis.
The high-margin software business combined with growing cloud billings provides significant cash flow to fund its AI data center projects. Even with the step up in spending last quarter, free cash flow came in at $5.9 billion.
After the sell-off, the stock trades for just $400 per share as of this writing. Its forward price-to-earnings ratio of just 24 is a level the stock hasn't seen in years. At this price, it's an absolute bargain investment.
