Investors are increasingly concerned about whether the huge sums of money invested in artificial intelligence (AI) infrastructure will pay off. This is a fair question.
Big tech executives will tell investors that AI is an area to invest in, and will argue that the risks of underspending or being left behind far outweigh the risks of overspending. Still, data center companies are pouring hundreds of billions of dollars into expansion, and investors aren’t willing to tolerate this type of capital investment indefinitely if they don’t see a return on investment.
Will AI create the world’s first millionaire? Our team published a report on one little-known company called an “essential monopoly” that provides critical technology needed by both Nvidia and Intel. Continued “
But some AI hyperscalers are now actually making money from AI, and there are clear paths to making even more money. What do you think? microsoft(NASDAQ: MSFT) Are you doing it? Let’s take a look.
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Microsoft is integrating AI across its products
There are two main ways Microsoft makes money from AI: Copilot and Azure.
Let’s start with Copilot, Microsoft’s AI tool built into nearly every Microsoft Office product. Subscribers had to pay an additional fee to access this add-on, allowing Microsoft to increase revenue from its core software product. However, it’s not as exciting as Azure.
Azure is Microsoft’s cloud computing division and is experiencing significant growth due to the growing demand for AI. Azure’s fourth quarter revenue increased 39% year over year. Its growth rate would have been even higher if Microsoft had leased new computing power to more external customers rather than dedicating it internally.
The idea behind cloud computing is very simple. Microsoft builds excess computing power and rents it out to customers who need it. Most companies lack the resources and expertise needed to build their own AI datacenters. So these are content that we’re completely renting from Azure. Additionally, most clients don’t want to keep assets like data centers on their balance sheets.
Azure is a usage-based or subscription-based service. Either way, Microsoft makes more money the more its services are used. As the demand for AI increases, so will Microsoft’s revenue. Microsoft is currently expanding its capabilities to handle a massive $625 billion backlog of AI computing. This is why Microsoft is pushing to invest more in AI computing power, because what’s already online falls short of what’s needed to run an AI-first economy.
However, the long-term revenue generated from its Azure business far exceeds its expenses, so as long as it maintains a long-term focus, Microsoft’s spending is a good idea and its stock is a smart investment.
Should you buy Microsoft stock now?
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Keithen Drury has a position at Microsoft. The Motley Fool has a role in and recommends Microsoft. The Motley Fool has a disclosure policy.
