Is Microsoft stock a good buy?

Shares in Microsoft (MSFT 0.34%) they have grown by 35% since May 2023, attracting investors with the steady growth of the overall business and growing position in the field of artificial intelligence (AI).

Microsoft has come a long way since its founding almost 50 years ago. The company is the king of software, attracting billions of users to products such as Windows, its office suite, various Xbox offerings, LinkedIn and its Azure cloud platform. The success of these products made Microsoft the most valuable company in the world, with a market capitalization of over $3 trillion.

However, recent events indicate that the company is still far from hitting its ceiling. Microsoft has gained an edge in the field of artificial intelligence, thanks to which it can outperform its rivals. Meanwhile, the tech giant is benefiting from the boom in many other markets.

Here’s why Microsoft is a definite buy right now.

Solid growth in many segments

On April 25, Microsoft released its earnings for the third quarter of 2024 (ended March 2024). The company’s revenue rose 17% year-over-year to $62 billion, beating analyst expectations by more than $1 billion. Meanwhile, operating income increased 23% to almost $28 billion.

Windows has seen double-digit growth across all of its segments. Microsoft’s Productivity and Business Processes business has benefited from growth in commercial revenues from Office 365, illustrating the power of platforms such as Word, Excel, PowerPoint, Teams, Outlook and others. The company has become a household name for businesses around the world and may continue to grow in the industry by introducing new AI features across its productivity offerings.

Microsoft also reported 17% year-over-year growth in its PC segment during the quarter. The company attributed this growth to a 51% increase in gaming revenue. The increase comes after Microsoft’s Xbox brand bought gaming maker Activision Blizzard for a historic $68 billion last October.

The acquisition brought in highly profitable gaming franchises such as Call of Duty, OverwatchAND World of Warcraft into the Microsoft fold. Recent earnings indicate that the purchase was a wise move, as the company has barely scratched the surface of what Activision’s prized game library can do.

However, Microsoft’s biggest catalysts for growth in the future will likely be its Azure cloud platform as the company continues to develop artificial intelligence.

Microsoft is taking full advantage of its artificial intelligence advantage

Microsoft was an early investor in artificial intelligence, injecting $1 billion in 2019 into ChatGPT developer OpenAI. The company has since increased that investment to approximately $13 billion, giving Microsoft exclusive access to some of the industry’s most advanced artificial intelligence models.

The partnership gave Microsoft an industry advantage over its rivals Amazon AND Alphabet, who were trying to catch up last year. As a result, Azure’s cloud market share has begun to grow for Amazon Web Services (AWS), the world’s largest cloud platform. In Q4 2023, AWS lost 2% of its market share and Azure gained 2%.

Meanwhile, Microsoft’s Intelligence Cloud segment saw revenue grow 21% year-over-year in the most recent quarter, while AWS sales grew 17% over the same period.

In addition to new cloud services, Microsoft has gradually introduced AI features into many of its products. The company has integrated parts of ChatGPT into its Bing search engine, brought generative features to platforms like Word and PowerPoint, and launched an AI assistant called Copilot on Microsoft 365. Copilot debuted last year as an add-on to 365, a $30-a-month subscription once the company starts making money on its artificial intelligence efforts.

Data according to YCharts.

Microsoft shares are trading at nearly 36 times earnings. However, with the same metric for Amazon of 41 points, Microsoft is at least a better deal than its biggest cloud rival. Meanwhile, the chart above shows that Microsoft has outpaced many of the most important players in the AI ​​market in terms of free cash flow.

The numbers indicate that Microsoft is potentially best positioned to continue to advance AI and overcome potential obstacles. In addition to promising growth in productivity software and gaming, Microsoft stock is worth its premium price and is a hot buy right now.

Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Dani Cook has no position in any of the companies mentioned. The Motley Fool covers and recommends Advanced Micro Devices, Alphabet, Amazon, Microsoft and Nvidia. The Motley Fool recommends the following options: long $395 Microsoft calls in January 2026 and short $405 Microsoft calls in January 2026. The Motley Fool has a disclosure policy.