Shares of Microsoft (MSFT) have gone on an impressive run over the past year, surging some 65%, more than tripling the 20% rise in the S&P 500 index during that span. For software giant, this includes gains of 17% and 5% in six months and one month, respectively, which also outperform the S&P 500 index in both spans.
As of Friday’s closing share price of $388.47, the Satya Nadella-led company now has a market cap of $2.89 trillion, which is just enough to surpass Apple’s (AAPL) $2.87 trillion market cap for the title as the world’s most-valuable company. Investors have fallen in love with Microsoft for many reasons, chief among them is the company’s advances in generative artificial intelligence, which began in late 2022 with it’s $10 billion investment in OpenAI’s ChatGPT, giving Microsoft 33% ownership of the company.
Microsoft’s ownership stake in OpenAI, which is valued at $86 billion, has since risen to 49% after an additional $3 billion purchase. ChatGPT has since become the fastest-growing technology in history, hitting 1 million users in the first 5 days of launch and 100 million users in just the first couple of months. The chat bot reportedly reached 2 billion users after only six months. Estimates suggests it has since reached 3.4 billion global users at the end of 2023.
ChatGPT is forecasted to generate a revenue of $1 billion in 2024. But it doesn’t stop there. The generative AI market is currently growing at 42% and could hit $1.3 trillion by 2032, according to Bloomberg Intelligence estimates. The bulk of the revenue growth from generative AI, estimated $247 billion by 2032, will come from demand for the infrastructure needed to train AI models.
What’s more, estimates suggests that the AI-assisted digital ads business could reach $192 billion in annual revenue by 2032, while revenue from AI servers could hit $134 billion. Given these immense capabilities, as well as AI’s ability to learn and solve problems like humans by using (among other things) advanced form of computer processing, the money-making potential is immense.
As for Microsoft, it has begun to monetize AI, and has since launched Copilot, which leverages AI to enhance its productivity software suite. Copilot is already used by 40% of Fortune 100 companies, and over 37,000 organizations have subscribed to Copilot for Business. Microsoft 365 Copilot is priced at $30 per month, with some analysts estimating that at $30 per user per month, Copilot could boost Microsoft’s fiscal 2025 revenue by as much as $9 billion.
These bullish estimates may have some credence, particularly on the heels of the company’s Q1 2024 earnings results, which showed better-than-expected growth at its Azure cloud unit. Q1 revenues beat consensus expectations by a significant margin, coming in at $56.5 billion. Not only was that ahead of consensus by 4%, it translates to a 13% growth year over year. During the quarter, Microsoft also shared that AI Services contributed 3 points. And that’s really where the fun begins.
The fact that AI Services contributed just 3 points to Microsoft’s bottom line during Q1 shows just how nascent the AI market still remains. Having already deployed its AI services to more regions compared to its competitors, Microsoft announced that its next-generation H100 Virtual Machines will soon be available. Estimates are calling for Microsoft ’s AI prospects to get a 33% boost over the next several quarters. In other words, even as Microsoft stock is sitting at all-time highs as the world’s most-valuable company, there is plenty of value to be realized with its AI-driven focus.
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