I firmly believe that the best way to build wealth in the stock market is to invest in elite businesses. By elite, I mean the companies with the most powerful competitive advantages and largest growth opportunities.
I seek out these "tier 1" enterprises because they often turn out to be outstanding investments. And they can help you earn market-crushing returns.
This proven wealth-building framework is pointing me in the direction of one exceptional company today: Microsoft (MSFT 0.52%). Here's why the tech juggernaut is my highest-conviction stock idea right now.
Widening the moat
Microsoft dominates the productivity software market with its popular Word, Excel, and PowerPoint offerings. It also continues to command the lion's share of the personal computer (PC) operating system market with its venerable Windows franchise. Dynamics, Teams, Xbox, and LinkedIn give it additional beachheads in the corporate resource planning, collaboration, gaming, and social media industries.
But it's Microsoft's leading presence in the cloud and artificial intelligence (AI) that I find most intriguing. Microsoft's cloud infrastructure platform, Azure, is growing faster than its closest rival, Amazon Web Services. Azure is benefiting from Microsoft's entrenched relationships with its longtime corporate customers, which enable it to more easily cross-sell cloud services and integrate them into its existing client agreements.
Microsoft's new AI initiatives are even more tantalizing. In late January, the software giant struck a multibillion-dollar partnership with one of the hottest start-ups on the planet, OpenAI. In exchange for its investment, Microsoft gained access to the technology that powers the wildly popular AI-driven application ChatGPT.
Microsoft is now working to integrate the cutting-edge tech into its products and services. That includes a new premium version of its Microsoft Teams collaboration tools, which will use ChatGPT and other AI capabilities to provide users with automatically generated meeting notes, translations, and other advanced features. Microsoft is also reportedly in the process of adding ChatGPT-like tools to its Office software suite. These AI upgrades should help Microsoft widen its competitive lead in these key markets. Microsoft's AI prowess should also allow it to charge higher prices for its upgraded products and services, and thereby boost its already impressive profit margins.
Massive growth opportunities
Microsoft has even more growth potential in the internet search market. The tech titan released a new AI-powered version of its Bing search engine earlier this month. CEO Satya Nadella believes the new Bing, which can provide humanlike answers to user questions in a chat-based format, is the biggest development for Microsoft since the dawn of cloud computing roughly 15 years ago.
Nadella wants to use AI to help Microsoft wrestle away search market share from Alphabet's Google. And judging by the mostly positive early reviews from users, it just might.
Yet Microsoft has an even larger expansion opportunity in the cloud. OpenAI's ChatGPT, and many other AI applications, are being built on cloud infrastructure. Microsoft is positioned to win a sizable share of this new business, thanks to its partnership with OpenAI and access to ChatGPT, as well as its aggressive moves to build out Azure's own AI capabilities.
By helping companies harness the power of AI, Microsoft is poised to be a prime beneficiary of two of the most powerful technology trends in the world today. The global cloud and AI markets are expected to grow to approximately $1.7 trillion and $1.4 trillion, respectively, by the end of the decade, according to Fortune Business Insights. Although there will likely be a substantial overlap between these two industries, cloud computing and AI are clearly set to become massive markets. And they are certainly large enough to fuel Microsoft's revenue and profit growth in the coming years.
