Microsoft's AI investment layout, OpenAI cooperation and future growth prospects
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In this article, we’re taking a closer look at where Microsoft Corporation (NASDAQ: MSFT) stands among the latest AI news and ratings making waves. With the increasing popularity of AI tools like OpenAI's ChatGPT, a heated debate has surfaced in the U.S. AI sector around content creation and copyrights. OpenAI, currently the world’s most valuable private AI firm, recently achieved a significant legal victory when a New York federal judge dismissed a lawsuit alleging the company improperly used content from Raw Story and AlterNet to train its language models. OpenAI defended its approach by stating its AI models are trained on publicly available data in ways supported by fair use principles and longstanding legal precedents.
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OpenAI’s Legal Win and Expansion in AI Ventures
OpenAI's recent legal win is likely to further elevate its reputation and growth potential. The company is already venturing into new AI projects, with Reuters reporting its participation in a recent funding round for Physical Intelligence, a robotics software startup. The funding round, which included notable investors like Jeff Bezos, Thrive Capital, and Lux Capital, raised over $400 million, valuing the firm at more than $2 billion. According to research by Accel, funding in AI and cloud firms across the U.S., Europe, and Israel is on track to reach $79.2 billion by the end of 2024.
If you’re interested in more developments in AI stocks, explore "30 Most Important AI Stocks According to BlackRock" and "Beyond the Tech Giants: 35 Non-Tech AI Opportunities."
Why Hedge Fund Favorite Stocks Matter
Our team selected this list of AI stocks by examining news articles, stock analysis, and press releases. These stocks are also hedge fund favorites, as our research has shown that imitating the top stock picks of leading hedge funds can often outperform the market. Our strategy of selecting top small- and large-cap stocks each quarter has returned 275% since May 2014, beating the benchmark by 150 percentage points.
Microsoft Corporation (NASDAQ: MSFT) and its AI-Powered Future
Microsoft, based in Washington, announced on November 7 that it will soon roll out its first AI-powered toolkit for Xbox, which includes a chatbot for support and AI dashboard features like natural language search. According to The Verge, these features will be available globally in the coming weeks. Microsoft ranks 2nd on our list of AI news and ratings due to its continuous innovations in AI, although we believe other AI stocks may have more immediate growth potential.
Microsoft’s AI ambitions are deeply rooted in its relationship with OpenAI, in which it invested $1 billion in 2019. This investment was motivated by the need to keep pace with competitors like Google’s DeepMind. The partnership has since grown, with Microsoft committing $13 billion in total funding. Today, Microsoft exclusively provides OpenAI’s cloud infrastructure through Azure, capitalizing on workloads running on OpenAI's models, including ChatGPT Enterprise.
Microsoft’s Multi-Billion-Dollar OpenAI Partnership: What Investors Should Know
Microsoft’s $13 billion investment has numerous benefits: it ensures Azure earns revenue from OpenAI applications, enables AI integrations into Microsoft’s products, and secures a percentage of OpenAI’s profits until a predetermined cap is reached. For example, Microsoft’s 2023 rollout of Microsoft 365 Copilot, a generative AI tool in Office applications, has already been adopted by 70% of Fortune 500 companies. The Azure OpenAI Service, which allows customers to build AI applications on Azure, has also seen rapid uptake, with over 60,000 customers.
However, Microsoft’s ongoing investment is currently a financial headwind. The company reported a $683 million expense related to OpenAI in its first fiscal quarter of 2025, with CFO Amy Hood predicting an increase to $1.5 billion in the second quarter. Morgan Stanley analysts project that Microsoft will complete its funding obligations by fiscal year 2026, after which earnings are expected to accelerate. Analysts estimate a 14% annual earnings growth for Microsoft through fiscal 2028, suggesting improved long-term growth potential.
Is Microsoft Stock a Smart Investment Right Now?
Microsoft’s investment in OpenAI has positioned it as a leading player in AI. Despite OpenAI’s current unprofitability, Microsoft’s 49% profit-sharing agreement with the AI startup, which is valued at $157 billion, remains highly promising. Earnings growth for Microsoft is expected to pick up once it completes its funding commitment. While the current valuation of 35 times earnings might seem steep, the majority of analysts (91%) rate Microsoft stock as a buy, with a median price target of $500 per share, an 18% upside from its current price.
For patient investors, Microsoft represents a solid, long-term investment in the AI space.
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