As one of the most diversified companies, Microsoft (MSFT -0.42%) has strong positions in operating systems, video games, cloud computing, productivity software, and even social media with LinkedIn. This year, the company will also expand its digital advertising business through a partnership with Netflix.
Microsoft's varied revenue streams proved their strength in 2022, with segments less affected by economic challenges able to maintain earnings growth despite declines in specific markets. The company's stock is down 22% year over year. However, its growth of 157% over the last five years proves it is a reliable long-term investment.
The company has some promising developments this year, making its stock even more attractive after a sell-off. Here are two reasons to buy Microsoft stock in 2023.
1. Microsoft is expanding in a lucrative market
On Jan. 18, Microsoft CEO Satya Nadella announced the company would reduce its employee headcount by 10,000 through March 31 as it prepares for slower revenue growth. Economic declines in 2022 led businesses and consumers to cut down spending on tech, with Microsoft affected by reduced PC sales and slowing growth in its cloud computing segment.
Between the first quarter and the fourth quarter of 2021, Microsoft's Azure quarterly revenue growth increased from 48% to 51%. However, growth slowed last year from 50% in Q1 2022 to 40% in Q4 2022. The trend has continued along with macroeconomic headwinds, with Azure reporting 35% revenue growth in Q1 2022.
However, economic headwinds are temporary and don't dampen Microsoft's long-term prospects in the industry. Even with recent slowing growth, the company's strong position in cloud computing is one of the most compelling reasons to invest in the tech giant.
Azure held a 21% market share in cloud computing in the third quarter of 2022, second only to Amazon Web Services' 34%. Meanwhile, the cloud computing market is expected to grow at a compound annual growth rate (CAGR) of 15.7% through 2030, and it was valued at $368.97 billion in 2021.
Microsoft plans to grow its cloud computing market share in 2023. In November, the company announced it would expand Azure data centers to 11 new regions, with Microsoft "very bullish" about Asia as a growth market.
Despite slowing growth in 2022, cloud computing still propped up multiple companies in the last year as other segments were hit harder by economic challenges. Cloud computing remains a quickly developing technology with plenty of room for growth over the long term, making it an excellent reason to invest in Microsoft's stock this year.
2. A stake in a promising start-up
In mid-January, news broke that Microsoft is considering investing $10 billion in OpenAI, an artificial intelligence (AI) company best known for its AI chatbot ChatGPT. The deal would expand Microsoft's stake in the company after it initially invested $1 billion in 2019.
OpenAI wowed the tech world last year with the launch of ChatGPT, which can engage in human-like dialogue based on prompts. The software can do various tasks, from answering simple queries to producing natural-sounding poems and prose.
Microsoft has previewed the start-up's tech in a program called Azure OpenAI Service in the past, recently making it generally available. However, heavier investment in the company is a promising sign for Microsoft's long-term future.
According to Grand View Research, the AI market was worth $93.5 billion in 2021 and will see a CAGR of 45% until at least 2030. The technology looks poised to become a strong focus of software going forward, with Microsoft well-positioned to profit from the market's growth.
In addition to using OpenAI's underlying tech, Microsoft has said ChatGPT will soon be available within its cloud services.
AI is a burgeoning industry, and Microsoft has seemingly gotten in on the ground floor. An investment in the tech titan could flourish over the long term as the AI market continues to develop, with 2023 an excellent time to buy Microsoft shares.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com, Microsoft, and Netflix. The Motley Fool has a disclosure policy.
