Companies with deep pockets to invest in AI technology will likely grow your savings for decades to come.
Artificial intelligence (AI) is a generational investment opportunity, but you don’t have to take unnecessary risks to reap the benefits from AI. One of the best ways to benefit from the growth of this technology is to invest in a major cloud service provider.
According to Synergy Research, the cloud market is valued at $297 billion and continues to grow at a high pace. Cloud leaders like Alphabet (GOOGL 1.57%) (GOOG 1.50%) and Microsoft (MSFT 0.80%) have generated returns for investors that outperformed the overall market, and should continue their winning streaks for many years.
If you have $500 or more to invest right now, here’s why you should consider buying at least one share of one of these elite technology companies.
1. Alphabet (formerly Google)
Alphabet’s stock has more than doubled in the past five years, but Google’s parent company continues to report solid growth from its advertising and cloud businesses. The stock is up 23% since the beginning of the year, outperforming the S&P 500.
Many customers choose Google Cloud over Amazon Web Services (AWS), the No. 1 cloud service provider. There are many reasons to choose one cloud provider over another, but factors that favor Google Cloud include tools that allow customers to easily migrate data from on-premises servers and a more modern user interface. You can According to Synergy Research, Google Cloud’s revenue in the second quarter rose 28% year-over-year to $10.4 billion, outpacing the overall cloud market’s 22% growth.
Alphabet continues to increase capital investment in its cloud business. The company’s capital spending accelerated to $44 billion over the past four quarters. Google is building more data centers and AI tools to meet the surge in cloud demand.
Additionally, Google’s Vertex AI platform is gaining support from leading organizations, including the U.S. Air Force, that need to build AI-powered generative applications. The engine behind Vertex and other AI services is Gemini. This is the company’s AI model that powers many of Google’s consumer products, including Google Cloud and search.
Most importantly, Google Cloud’s operating income soared from $395 million a year earlier to more than $1.1 billion in Q2 2024. This shows that Alphabet can make the necessary investments in key technologies, such as AI, while increasing profits to benefit shareholders.
Alphabet is scheduled to announce its third quarter results on October 29th. Wall Street expects the company to report double-digit profit growth over the long term. With the company’s stock trading at a reasonable forward price-to-earnings ratio of 19 times based on 2025 earnings estimates, Google investors are confident that the stock will reach new highs in the short term and in the coming years. You should expect that.
2.Microsoft
Microsoft stock has tripled in the past five years and is up 21% in 2024. Like Google, Microsoft offers software products that millions (if not billions) of people use every day, including Windows, which runs on 72% of desktop PCs. According to Statista.
However, the software giant continues to have the greatest momentum in enterprise cloud services. The company is currently the second-largest cloud service provider behind AWS, but Microsoft is rapidly closing the gap with Amazon. Microsoft Azure cloud services grew even faster than Google Cloud in the quarter that ended in June, with revenue up 29% year-on-year.
Microsoft is benefiting from an innovative partnership with OpenAI, which developed ChatGPT. OpenAI has brought significant improvements to Microsoft’s software products, including Azure, and the Azure OpenAI service is now used by most Fortune 500 companies.
Microsoft continues to pour billions of dollars into more data centers. Coincidentally, Microsoft’s capital spending over the past four quarters was about the same as Alphabet’s, at $44 billion. It achieved this while net income also increased 10% from the previous quarter to $22 billion.
Microsoft’s capital spending has increased 79% since the end of 2022, compared to Alphabet’s 40% increase. In its last earnings call, management said the company is laying the foundation to support growing cloud demand over the next decade and beyond. Cloud computing and AI opportunities are clearly in their infancy.
Microsoft is scheduled to report its fiscal 2025 first-quarter results on October 30, and analysts expect the company’s profits to rise 13% on an annualized basis. Investors should be well rewarded for holding this stock for the long term.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. John Ballard has no position in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
