There’s no denying the continuing buzz surrounding artificial intelligence (AI). The technology first gained public attention early last year for its ability to create original content and automate an increasing number of time-consuming and mundane tasks, thereby increasing employee productivity.
The company’s 2023 letter to shareholders reads: microsoft (MSFT -2.07%) CEO Satya Nadella addressed this paradigm shift, saying, “This next generation of AI will reshape every software category and every business, including ours.”
That may sound like an exaggeration, but a growing body of evidence suggests the process has already begun. Estimates vary widely, but the potential economic impact is impressive. According to global management consulting firm McKinsey & Company, the value of generative AI could be between $2.6 trillion and $4.4 trillion annually. Companies at the forefront of this trend will participate in this potential benefit, as will their shareholders.
Interestingly, Microsoft is already one of the companies innovating in the age of AI.
Image source: Getty Images.
Microsoft is my co-pilot
AI has been around for decades, but generative AI capabilities take it even further. The most in-demand use case (at the moment) involves data outlining. Create original images, text, and music. Summarize and draft email responses. Create a presentation with some prompts. and drafting and debugging computer code. And new and interesting use cases continue to be added.
Microsoft has begun developing generative AI tools in earnest with a strategic partnership and investment in ChatGPT creator OpenAI. This is a move that now seems prescient. Microsoft quickly found ways to integrate AI across a wide range of its most widely used products to make them even more useful.
The crown jewel of these efforts is Copilot, Microsoft’s AI-powered helper. What some investors may not realize is that Copilot is not just one, but a growing suite of job-focused digital assistants that automate increasingly menial tasks. The flagship version, Copilot for Microsoft 365, helps users of the company’s productivity software become even more efficient.
Last month, Microsoft released Copilot for Service and Copilot for Sales, offering “role-specific insights and actions to streamline business processes, automate repetitive tasks, and unleash creativity.” The company was quick to point out that these versions also integrate with the most widely used contact center and customer relationship management (CRM) systems. ServiceNow and sales force.
The company is currently testing Copilot for Finance, which helps check financial transactions and data for fraud, create financial reports from data, and use that information to generate presentations.
The first evidence is that this strategy violently success. Our research with early users revealed the following:
- 70% of Copilot users admit that their productivity has improved.
- 68% said the quality of their work had improved.
- 64% have reduced the time they spend processing email.
- 85% report that the first draft was faster.
- 75% said Copilot helps them find digital files faster.
Perhaps most impressively, 77% of respondents said that once they started using Copilot, they never wanted to stop.
This evidence suggests that Microsoft is just beginning to unlock the vast potential of its AI-powered assistant, which could generate billions of dollars in revenue. Just last week, evercore ISI analyst Kirk Materne updated his estimates, suggesting Microsoft’s generative AI efforts could pay off. incremental It is expected to generate $143 billion in revenue by 2027. By the way, Microsoft’s total revenue for his fiscal year 2023 (ending June 30, 2023) is his $212 billion, suggesting he could increase revenue by as much as 67% over four years. .
To be clear, a lot of things have to go right for Microsoft to hit this high of a benchmark, but this helps illustrate the size of the opportunity.
Gain cloud market share
Recent results show that AI Also It has had a halo effect on Microsoft Azure, the company’s cloud infrastructure business.
Microsoft revealed that its cloud services revenue grew 30% year-over-year in the second quarter of fiscal 2024 (ending December 31, 2023). This is faster than both companies. alphabetGoogle Cloud and Amazon Web services (AWS) grew 26% and 13%, respectively. Microsoft revealed that 6 percentage points of its growth was driven by demand for AI services. This was up from 29% growth in the previous quarter, which was up 3 points due to the impact of AI.
This suggests that Copilot is not only a big hit, but is also drawing customers to Microsoft’s cloud platform.
attractive opportunity
Microsoft’s stock price has soared 74% since the beginning of last year, more than double the rate of increase. S&P500. This isn’t out of the ordinary, either, as the stock is up 985% over the past decade, far outpacing the broader market’s 177% rise.
Despite its outstanding track record, Microsoft stock remains relatively cheap, trading at 35 times forward earnings and 11 times next year’s sales. While this represents a small premium for the overall market, the magnitude of the opportunity presented by cloud computing, AI, and Copilot shows why Microsoft deserves a premium.
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Danny Vena has held positions at Alphabet, Amazon, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Salesforce, and ServiceNow. The Motley Fool recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.
