Microsoft’s high exposure to AI makes Microsoft stock a buy

of Microsoft (NASDAQ:MSFT) Fiscal fourth quarter results, presented on July 30, showed that the tech giant’s Azure cloud unit continues to expand very rapidly. In addition, the firm is benefiting significantly from the AI ​​boom. It should also get a significant boost from its ongoing OS refresh. Ultimately, the firm is well-positioned to benefit from potential acquisitions in the AI ​​and cybersecurity spaces over the long term.

Given that Microsoft’s stock valuation is quite attractive, I think conservative investors looking for exposure to Big Tech should buy Microsoft stock.

Strong cloud growth and significant AI benefits

Azure benefits enormously from the AI ​​revolution and the continuous transfer of enterprise data to the cloud. Last quarter, the unit’s sales were up 29% year-over-year. About eight percentage points of the increase was attributed to the company’s sales of AI-related products, up from seven percentage points in the prior period.

Additionally, CFO Amy Hood expects Azure’s global growth to accelerate in the second quarter of its fiscal year, which began in July. She explained that the company’s capital spending will give it more AI services it can sell to meet growing demand for such offerings.

“Adoption of Microsoft’s native AI services running on Azure gains momentum,” Bank of America wrote following the tech giant’s results.

Meanwhile, 40 percent of the 8.8 million AI PCs that shipped last quarter had Microsoft Windows operating systems, according to technology research firm Canalys. For the full year, 44 million AI PCs are expected to ship, and Canalys predicts that total will more than double next year to 103 million. The trend drove a 9 percent increase in the total number of Windows PCs priced above $800 in the latest quarter compared to the first quarter, the firm said.

As a result of these developments, the total revenue generated by the Windows operating system should increase significantly. This means Microsoft should be able to generate deep sales by offering AI software and services to the rapidly growing number of consumers and businesses with AI PCs.

Windows Update and Potential Purchases

Microsoft will end free support for its Windows 10 operating system in October 2025. As a result, many owners of PCs running the software will likely upgrade to later versions of the operating system, significantly increasing the top- and bottom-line performance of the company. indeed HP (NYSE:HPQ) CEO Enrique Lores reported in May that the “upgrade cycle” had created stronger-than-expected demand for its PCs. The latter trend should accelerate as we approach October 2025.

Moreover, some companies may take up Microsoft’s offer to upgrade Windows PCs for $61 per device for the year ending in October 2026. But of course, the revenue from these payments will also increase Microsoft’s top and bottom results.

Meanwhile, with interest rates falling, the company may feel better about making large and significant acquisitions in the future. In particular, I think the tech giant could be looking to buy sizable cybersecurity and AI firms. Given the continuing waves of cyber attacks, the demand for IT security software continues to grow rapidly as firms continue to look to improve their performance by incorporating more AI applications. Artificial intelligence appears to be particularly effective for healthcare firms, so Microsoft may be looking to buy an AI company that specializes in healthcare.

Evaluation and final result

Microsoft stock has a forward price-to-earnings ratio of 31 times. That’s an attractive valuation, given that analysts expect its EPS to grow 11% this year and 16% next year.

Given Microsoft’s sheer size and high leverage in the still relatively sluggish PC market, the company’s growth won’t set the world on fire. Still, given its ability to benefit significantly from the AI ​​boom and its reasonable valuation, the stock is attractive to conservative investors looking for more exposure to Big Tech.

As of the date of publication, Larry Ramer did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

At the time of publication, the responsible editor had (either directly or indirectly) no position in the securities mentioned in this article.