Investment in artificial intelligence (AI) is rapidly increasing, and certain leading tech stocks offer potential for profit.
AI is generating significant economic opportunities. Estimates suggest that AI spending could hit $2.5 trillion by 2026, reflecting a 44% growth year-on-year, with projections indicating it may reach $3.3 trillion by 2027.
Microsoft and Oracle stand out as major players in the tech sector with impressive AI capabilities. Microsoft has been integrating AI into common productivity tools, while Oracle is reaping benefits from heightened demand for AI-related computing through its cloud services. Let’s explore what might fuel their growth in the coming years.
1. Microsoft
Microsoft has been a noteworthy growth stock, having doubled since 2021, and there’s likely more to come. Last quarter, its revenue surged by 18% from a year earlier, largely driven by interest in AI features within Microsoft 365 and the Azure enterprise AI platform.
The company is rolling out the Copilot AI assistant across its suite of productivity products, which has been pivotal in driving demand. Additionally, the Azure AI division is gaining traction in the $390 billion cloud sector. This progress highlights Microsoft’s solid cloud foundation that supports advanced services, enabling customers to leverage their data effectively, including creating AI applications.
Demand for Microsoft’s offerings has prompted significant investments in data center expansion, which could impact profit margins. However, this also showcases the company’s financial robustness, with projected cash flow near $147 billion from operations in the next year. Such funds are essential for advancing AI capabilities and maintaining competitive edges.
With an expected price-to-earnings (P/E) ratio of 27, investors might find the stock reasonably priced. Analysts foresee a 13% annualized growth in earnings over the next few years, suggesting that stock performance may align closely with company growth.
2. Oracle
Oracle is witnessing rapid growth in its cloud infrastructure division, making it a compelling investment option. There’s a strong demand from firms for the necessary servers and chips to train their AI systems. Given Oracle’s sophisticated database features and capabilities for AI training, it’s appealing for these enterprises.
The cloud segment recently posted a remarkable 68% growth year-on-year, even though it represents only 25% of total revenue. This indicates Oracle’s potential to capture a share of the $159 billion cloud infrastructure market, which is anticipated to grow about 13% annually until 2034.
Though Oracle faces competition from other cloud providers like Microsoft, its multicloud strategy differentiates it. This allows customers to operate Oracle databases across diverse cloud platforms, which has become a draw—evidenced by an impressive 817% increase in multicloud revenue year-on-year last quarter.
Due to its growth trajectory, Oracle currently holds an appealing forward P/E ratio of 24. This valuation is attractive given the expectation of 22% annual earnings growth. At this price point, investors have the potential to see their investments double in about five years.
