As Microsoft and Amazon look to benefit from AI outside of cloud computing, are stocks a buy?

both Microsoft (MSFT -0.78%) and Amazon (AMZN 0.91%) have seen their respective cloud computing segments, Azure and Amazon Web Services (AWS), benefit from the early bird advantage of artificial intelligence (AI) as customers use these platforms to build their own AI solutions. Last quarter, Azure revenue rose 29% year-over-year, while AWS revenue rose 19%.

Along with cloud services, both companies are also trying to implement AI in other parts of their businesses, both to increase the top lines of their business segments and to improve profitability by becoming more efficient.

Let’s look at AI efforts outside of cloud computing for both companies and see if that makes their stocks better buys.

AI powers Microsoft Copilot’s efforts

Microsoft’s biggest AI innovation outside of Azure has been the introduction of various Copilot AI assistants for its various software offerings. Copilots can help users increase productivity through recommendations and the ability to perform various tasks.

The most successful Copilot for the company in terms of increasing sales of a product was the one designed for its GitHub developer platform. This Copilot performs tasks such as making suggestions as developers write or even being able to complete code. The company said GitHub Copilot was the source of 40 percent of GitHub’s revenue growth this year, and that GitHub Copilot is now bigger than the entire business when Microsoft acquired it in 2018. More than 90 percent of the Fortune 100 now use the platform, according to to Microsoft.

The company recently introduced a series of enhanced Copilots for its Microsoft 365 productivity toolset at an event called “Microsoft 365 Copilot: Wave 2.” One of the big introductions at the event was a new feature called Copilot Pages, which allows multiple users to collaborate on a shared platform with AI assistance.

The company also introduced improved Copilots for Excel, Word, PowerPoint, Teams and Outlook. Some of the new features include integrating Python into Excel and allowing users to work with the programming language using only natural language. This can help casual users perform more advanced forecasting, data visualization, and risk analysis without having to learn to code in Python. Meanwhile, Word Copilot will be able to extract data from all different types of documents, while Copilot for PowerPoint will help users create presentations using natural language. Copilot in Outlook, meanwhile, can help users prioritize their inboxes.

The company charges users $30 per month for Microsoft 365 Copilot and just announced a deal with Vodafone to provide Copilots to its 68,000 employees. With these new improvements, the company looks set to win even more big deals.

Overall, Copilots is a pretty big opportunity for Microsoft and could be the next step in AI growth.

Amazon

Amazon is using AI to help its business outside of AWS in a much more subtle way than Microsoft is with its highly visible Copilots. While some of Amazon’s AI initiatives are consumer-oriented, many are not.

On the consumer side, the company has added features like AI-generated customer review highlighting, which takes user reviews of a product and provides an overall summary of what users liked and didn’t like about a product. It also created a new AI-powered shopping assistant called Rufus to make personalized recommendations and help shoppers find what they need more easily. It even uses artificial intelligence to make clothing size charts more accurate and recommend sizes for a specific item.

Image source: Getty Images.

On the seller side, the company offers a number of AI tools to help improve listings. This includes helping sellers create registration pages more easily by just uploading an image, using a simple description, or providing a URL to their own site. It now also has AI image generation tools that allow sellers to see their products with different lifestyle or seasonal themes.

Perhaps more importantly, the company is using artificial intelligence in the back end of its logistics and warehouse operations to become more efficient. One way it does this is by using AI to optimize the routes its drivers use to deliver their packages. Amazon has one of the largest logistics networks in the world, and optimizing routes can lead to both fuel cost savings and faster package delivery.

The company also uses artificial intelligence to help forecast demand and improve supply, both of which can lead to improved sales and cost savings. Meanwhile, one of the most interesting ways Amazon is using AI is in its warehouse, where it uses computer vision and robots trained by generative AI to find and handle items faster, as well as to better identify if any products are damaged . As more of these robots are added, it creates a more efficient warehouse and leads to cost savings.

For Amazon, these AI initiatives help both sales and cost savings, although as an e-commerce retailer, sales will still be influenced by the consumer and macro environment. The company is making all of its AI spending, both at AWS and in other parts of its business. Historically, he has seen a lot of benefits from his investments over time.

MSFT PE Ratio data (forward 1y) by YCharts

Is it time to buy these two AI-related stocks?

With Microsoft trading at a forward P/E of 28 and Amazon trading at 32 times analyst estimates for next year, neither stock is in the bargain bin. However, both companies have proven to be industry leaders that are adaptable over time, and their stocks have been winners because of it. They are also two of the world’s leading cloud computing companies. With AI becoming one of the biggest technological revolutions ever seen, these are the companies you want to invest in for the long term.