Microsoft’s Long-Term Strategy Is Being Accelerated By Its AI Investments


  • Microsoft leads in AI, holding a significant stake in OpenAI. Competing with Google, AWS, and Meta, it aims to build AGI. This boosts profits, but may have long-term ethical risks.
  • Microsoft shows the highest AI-related growth among peers. Its diversified approach slows growth slightly, but its net income margin remains impressive.
  • MSFT stock is likely fairly valued, and my baseline price targets for the investment over the next two decades indicate market-beating returns.
  • Investors and management should consider the long-term risks of the AI arms race. Major AI players would benefit from a slower, more prudent approach, prioritizing long-term value over short-term gains.

Innovation Technology Race

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I last covered Microsoft (NASDAQ:MSFT) in February; I put out a Buy rating at the time, and since then, it has gained ~3.3% in price. In my analysis, I focused on the long-term benefits of the Activision Blizzard acquisition. In this

Azure Cognitive Services APIs for vision, speech, language, and decision-making, amongst other services.
Azure Machine Learning Offers a platform designed for building, training, and deploying machine learning models.
Azure Bot Services Enables the creation of chatbots and other conversational AI.

Alphabet Leads with DeepMind’s research, TensorFlow, and AI-enhanced products, including Search and Google Assistant. It has a heavy emphasis on ethical AI, including advisory councils.
Amazon Dominates cloud AI services through AWS, with significant investments in Alexa and retail innovations such as Amazon Go. It also focuses on responsible AI use.
Meta Pioneering with FAIR’s research, PyTorch, and AI-driven content moderation and personalization. It has an independent body to guide ethical AI deployment.

________________________________ MSFT GOOGL AMZN META
FWD Revenue Growth 5Y Avg 13% 16.59% 18.47% 18.5%
FWD Diluted EPS Growth 5Y Avg 15.69% 20.28% 24.76% 15.34%
FWD Free Cash Flow Growth 5Y Avg 12.68% 20.59% 28.59% 12.52%
TTM Net Income Margin 5Y Avg 34.44% 23.56% 4.16% 28.7%
Equity-to-Asset Ratio 0.52 0.72 0.41 0.67

FWD P/E GAAP Ratio 36.25 23.2 41.22 (Non-GAAP) 24.85
FWD P/E GAAP Ratio 5Y Avg 30.97 25.91 183.02 (Non-GAAP 23.7
Difference +17.04% -10.46% -77.48% (GAAP not available) +4.86%
FWD P/S Ratio 12.98 6.24 3.05 8.03
FWD P/S Ratio 5Y Avg 10.33 5.67 3.02 6.63
Difference +25.73% +10.18% +0.81% +21.04%

Analyst’s Disclosure: I/we have a beneficial long position in the shares of GOOGL, AMZN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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