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and Research


PREDICTION: THIS ARTIFICIAL INTELLIGENCE (AI) STOCK COULD BE WORTH MORE THAN
MICROSOFT 5 YEARS FROM NOW

By Harsh Chauhan – Apr 19, 2024 at 9:00AM


KEY POINTS

 * Amazon is expected to clock a healthy growth rate over the next five years,
   with AI set to be a key catalyst.
 * The company is aggressively integrating AI into its platforms to capitalize
   on lucrative opportunities.
 * Amazon's impressive earnings growth rate suggests that it may be able to
   overtake Microsoft.
 * Motley Fool Issues Rare “All In” Buy Alert


NASDAQ: AMZN


AMAZON



Market Cap
$1,863B

Today's Change
Arrow-Thin-Down
(-2.56%) -$4.59
Current Price
$174.63
Price as of April 19, 2024, 4:00 p.m. ET


You’re reading a free article with opinions that may differ from The Motley
Fool’s Premium Investing Services. Become a Motley Fool member today to get
instant access to our top analyst recommendations, in-depth research, investing
resources, and more. Learn More

Microsoft has been one of the pioneers in the field of AI, but this tech giant
is also set to win big time from the growing adoption of this technology.

Microsoft (MSFT -1.27%) is now the most valuable company in the world, with a
market capitalization of just over $3 trillion. The proliferation of artificial
intelligence (AI) has played a central role in helping the tech giant reach this
position.

Shares of Microsoft have jumped more than 72% since the beginning of 2023 when
the AI revolution started taking hold. The stock's performance has matched that
of the Nasdaq-100 Technology Sector index during this period. Microsoft's
impressive rally seems well-deserved considering that the company has been quick
to monetize its partnership with OpenAI and is offering a wide range of
AI-focused solutions across its software portfolio.

AI has started moving the needle for Microsoft already, with the company
witnessing growth in lucrative markets such as cloud computing. Looking ahead,
Microsoft could remain a solid AI play thanks to adoption of the technology in
the workplace collaboration, cloud, gaming, and personal computer (PC) markets.

However, Microsoft itself expects AI to only make a gradual contribution to its
growth. Meanwhile, analysts at investment banking firm Evercore predict that AI
could add $100 billion to Microsoft's annual revenue by 2027. The company's
trailing-12-month revenue of $575 billion suggests that AI could give
Microsoft's top line a 17% boost over the next three years based on Evercore's
estimate.

Arrows-In Collapse



NASDAQ: MSFT

Microsoft
Today's Change
(-1.27%) -5,15 $
Current Price
399,12 $
Arrow-Thin-Down
YTD1w1m3m6m 1y
+40.82%
5y
Price VS S&P
MSFT


KEY DATA POINTS

Market Cap
$2,966B
Day's Range
397,77 $ - 405,48 $
52wk Range
275,37 $ - 430,82 $
Volume
29,881,423
Avg Vol
21,550,839
Gross Margin
69.75%
Dividend Yield
0.72%

This probably explains why analysts are expecting Microsoft's earnings to
increase at 16% a year for the next five years. While that's a decent pace of
growth, there are other AI stocks that are anticipated to clock much faster
growth over the next five years, and they may even become more valuable than
Microsoft.



We are going to take a look at one such name in this article.


AMAZON COULD BE A BIG WINNER OF THE AI REVOLUTION

Amazon (AMZN -2.56%) is the sixth-largest company in the world, with a market
capitalization of $1.9 trillion. Like Microsoft, the e-commerce and cloud
computing giant has been aggressively incorporating AI elements into its various
offerings.

For instance, the company is bolstering its cloud computing business -- Amazon
Web Services (AWS) -- by offering customers "the most expansive collection of
compute instances." AWS customers can not only get access to chips from chip
giant Nvidia to train and deploy AI models on its cloud computing platform, but
they can also access Amazon's in-house chips for their AI needs if they are
looking for performance on a budget.

Amazon management pointed out on the company's February earnings conference call
that "several customers [use] our AI chips, including Anthropic, Airbnb, Hugging
Face, Qualtrics, Rico, and Snap." That's not surprising, as different companies
have different needs when it comes to developing AI applications, and not
everyone needs the power of an expensive Nvidia graphics card.



Amazon has recognized this, and is looking to capitalize on its position as the
leading cloud computing provider to win more AI-related business. AWS controlled
31% of the cloud infrastructure market at the end of last year. The integration
of AI tools into its platform is a smart move by Amazon, as the demand for AI
services in the cloud could grow at an annual rate of 36% through 2032,
generating $887 billion in annual revenue at the end of the forecast period.

The good news for Amazon investors is that the cloud isn't the only area where
the company is deploying AI to power its long-term growth. It has introduced
e-commerce-focused AI tools as well. Amazon has harnessed the power of
generative AI to help sellers create product pages on its e-commerce platform
with just a link to their websites. Sellers won't have to go through a lengthy
and tedious process to populate product pages manually.

That's why it isn't surprising to see that more than 100,000 of the company's
selling partners have already used this tool, which simplifies the process of
creating listings on the platform. The ease of creating product pages could help
Amazon attract more sellers and allow it to corner a bigger share of the
e-commerce market in the future.

Arrows-In Collapse



NASDAQ: AMZN

Amazon
Today's Change
(-2.56%) -4,59 $
Current Price
174,63 $
Arrow-Thin-Down
YTD1w1m3m6m 1y
+63.27%
5y
Price VS S&P
AMZN


KEY DATA POINTS

Market Cap
$1,863B
Day's Range
173,44 $ - 179,00 $
52wk Range
101,15 $ - 189,77 $
Volume
55,919,952
Avg Vol
42,447,704
Gross Margin
46.98%
Dividend Yield
N/A

At the same time, Amazon has rolled out a generative AI-powered assistant known
as Rufus to help improve product discovery for customers shopping on its
platform. Amazon has trained Rufus using its "extensive product catalog,
customer reviews, community Q&As, and information from across the web." As a
result, the company could encourage more customer spending on its platform by
using AI to recommend the right products.



All in all, it is easy to see why analysts are expecting Amazon to clock a
healthy annual earnings growth rate of 30% for the next five years. But will
this be enough to make it bigger than Microsoft five years from now?


CAN AMAZON OVERTAKE MICROSOFT?

Amazon finished 2023 with earnings of $2.90 per share. If its earnings indeed
grow at 30% a year for the next five years, Amazon's bottom line could jump to
$10.77 per share. The stock is currently trading at 44 times forward earnings.
That's in line with the U.S. technology sector's earnings multiple. Given that
Amazon's earnings growth is forecast to accelerate over the next five years
compared to the 10% growth it has clocked in the last five, the market could
reward it with a richer multiple.

But even if Amazon maintains its forward earnings multiple in five years, its
stock price could jump to $474. That would be a 158% jump from current levels,
indicating that Amazon's market cap could increase to $4.9 trillion after five
years.

Microsoft's projected earnings growth rate of 16% could take its bottom line to
$20.60 in five years (using its fiscal 2023 earnings of $9.81 per share as the
base). Microsoft is currently trading at 31 times forward earnings, which is a
slight premium to its five-year average forward price-to-earnings (P/E) multiple
of 29.



Considering that Microsoft is predicted to clock slower earnings growth than
Amazon, we are going to assume that it will trade at a discount to Amazon and
maintain a P/E multiple of 29 in five years based on its five-year average. So
Microsoft stock could jump to $597 after five years. That would be a 43% jump
from current levels, indicating that its market capitalization could rise to
$4.4 trillion after five years.

As such, the possibility of Amazon becoming a bigger company than Microsoft in
five years cannot be ruled out, which is why investors looking to buy an AI
stock that can deliver healthy long-term gains should keep it on their radars.



John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member
of The Motley Fool's board of directors. Harsh Chauhan has no position in any of
the stocks mentioned. The Motley Fool has positions in and recommends Amazon,
Microsoft, and Nvidia. The Motley Fool recommends the following options: long
January 2026 $395 calls on Microsoft and short January 2026 $405 calls on
Microsoft. The Motley Fool has a disclosure policy.




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643%




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