Why Microsoft Corporation (MSFT) Will Be a Major Beneficiary of AI

In recent years, artificial intelligence (AI) has become a pivotal theme in the stock market as investors grapple with inflation and high interest rates. The release of OpenAI’s ChatGPT in November 2022 has accelerated interest in AI stocks, with industry leaders anticipating expansive growth in this sector.

The Surge of AI Stocks

Since the advent of AI technologies and initiatives, such as NVIDIA CEO Jensen Huang’s projection of a trillion-dollar market in accelerated computing, many technology stocks have flourished. For instance, between December 2022 and the first half of 2024, shares of NVIDIA saw a staggering gain of 631%, while Microsoft Corporation (NASDAQ: MSFT), a primary backer of OpenAI, experienced a remarkable 75% increase in stock value.

In the broader technology sector, stocks have reported gains ranging from 42% to 308%. Notably, Facebook’s parent company has gained 308% due to its emphasis on GPU investments and successful engagement with open-source AI models. This impressive performance underscores the early-stage dynamics of the AI landscape, characterized by investor fascination with companies positioned as enablers of AI.

Future Trajectories: Broadening the AI Investment Landscape

As the AI investment phase evolves, it is likely that investors will diversify their portfolios beyond traditional technology-based stocks. In 2024, the utility sector displayed impressive performance, with its component within the S&P index gaining 28% from the start of the year to the end of November, outpacing the benchmark index.

The insights from Goldman Sachs, as outlined in their report titled “Best Phase 2 AI Stocks: Top 24 High Conviction AI Stocks,” highlighted a range of industries from utility firms to computer hardware manufacturers expected to benefit from AI developments. A prominent category within this list is data center hardware, which stands poised to capitalize on the forthcoming wave of AI investment.

The Hyperscaler Cloud Providers and Their Impact

Wells Fargo’s expansive coverage on AI investment reveals that multiple additional sectors extend beyond well-known technology firms. They forecast that hyperscaler cloud providers are likely to have capital expenditures around $180 billion in 2025, a figure that dwarfs the anticipated $85 billion spending from oil majors.

Wells Fargo highlights that the construction of data centers primarily involves significant costs associated with graphics processing units (GPUs) and advanced supercomputers. However, it urges investors to pay heed to ancillary sectors such as cabling, steel racks, cooling systems (both liquid and air), electrical equipment, and backup generators—all vital components required to establish a robust data center infrastructure.

The Spectrum of Benefit: Beyond Traditional Tech Firms

The beneficiaries of this projected data center spending encompass more than just familiar technology companies. Wells Fargo underscores the importance of industrial and material stocks, stating that approximately 45% of the cost of building a data center relates to land, foundational construction, and general fit-out. Consequently, suppliers of essential materials like steel, aggregates, cement, and water equipment, along with broader non-residential construction suppliers, stand to gain from burgeoning hyperscaler capital expenditures.

The report also indicates promising opportunities in the electrical and HVAC systems sectors, where there are relatively few scaled suppliers capable of delivering large equipment, commercial systems, and diesel generators needed to support data centers.

Microsoft’s Position in the Evolving AI Landscape

As a stalwart in the technology sector, Microsoft Corporation’s backing of OpenAI places it strategically at the forefront of the AI movement. With its robust portfolio and dedicated focus on advanced computing solutions, Microsoft is set to harness the advancements in AI, staking its place among the most prominent beneficiaries of this rapidly evolving market landscape.

As the narrative continues to develop around AI investments, the need for diversified exposure to various sectors—including utilities, industrials, and materials—becomes more evident. Investors would do well to remain vigilant of the technological shifts and infrastructure developments that are likely to shape the next phase of AI expansion in the global economy.

Conclusion

In conclusion, Microsoft Corporation stands out as a major beneficiary of AI’s transformative influence on industries worldwide. With expectations of substantial investments in hyperscaler cloud infrastructure and advances in computing technologies, Microsoft exemplifies the alignment of technological innovation and investor interest in this burgeoning field.