The AI revolution is rapidly transforming industries and economies, spurring extraordinary growth and change worldwide. Therefore, we look into sound tech giants, such as Microsoft Corporation (MSFT), NVIDIA Corporation (NVDA), and Alphabet Inc. (GOOGL), which are revolutionizing the AI industry.
Ongoing research and innovation led by tech giants are fostering the adoption of advanced technologies across various industry sectors, including automotive, healthcare, retail, finance, and manufacturing. Therefore, the global artificial intelligence market is projected to grow at a CAGR of 36.6% from 2024 to 2030.
Moreover, the growing investments and partnerships among technology companies, research institutions, and governments are fueling innovation and driving growth in the AI industry. The development of AI chips and edge computing is also a growing trend, enabling more efficient and powerful processing of AI applications.
Thus, keeping the immense potential of AI in mind, let us dig deeper into the fundamentals of the featured tech giants in detail:
Microsoft Corporation (MSFT)
MSFT develops and supports software, services, devices, and solutions worldwide. The company operates in Productivity and Business Processes; Intelligent Cloud; and More Personal Computing segments. It offers Office, Exchange, SharePoint, Microsoft Teams, office 365 Security and Compliance, Microsoft Viva, Microsoft 365 Copilot, and Office consumer services.
On July 24, 2024, MSFT announced a new strategic partnership that would use the Microsoft Cloud to drive Lumen's digital transformation further. In addition, MSFT has chosen Lumen to expand its network capacity and capability to meet the growing demand for its data centers due to AI.
On May 8, MSFT announced a broad investment package designed to strengthen the role of Southeast Wisconsin as a hub for AI-powered economic activity, innovation, and job creation. The investments include $3.30 billion in cloud computing and AI infrastructure, creating the country’s first manufacturing-focused AI co-innovation lab and an AI skilling initiative.
MSFT’s trailing-12-month EBIT margin of 45.04% is 795% higher than the industry average of 5.03%. Its trailing-12-month Return on Total Capital of 17.80% is 902.6% higher than the industry average of 1.78%. Also, its 26.21% trailing-12-month levered FCF margin is 167.8% higher than the industry average of 9.79%.
MSFT’s total revenues increased 17% year-over-year to $61.86 billion for the third quarter that ended March 31, 2024. The company’s operating income grew 23.4% from the year-ago value to $27.58 billion. Its net income and EPS came in at $21.94 billion and $2.94, indicating growth of 19.9% and 20% from the prior year’s quarter, respectively.
In addition, the company’s total assets were $484.27 billion as of March 31, 2024, versus $411.98 billion as of June 30, 2023.
Street expects MSFT’s revenue and EPS for the fourth quarter (ended June 2024) to increase 14.6% and 9.3% year-over-year to $64.40 billion and $2.94, respectively. Furthermore, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Shares of MSFT have gained 35.1% over the past nine months to close the last trading session at $444.85.
MSFT’s POWR Ratings reflect this positive outlook. MSFT has a B grade for Stability, Quality, and Sentiment. It is ranked #17 in the B-rated Software - Business industry. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
In addition to the POWR Ratings highlighted above, one can access MSFT’s ratings for Growth, Momentum, and Value here.
NVIDIA Corporation (NVDA)
NVDA provides graphics, computing, and networking solutions internationally. The company operates in two segments: Compute & Networking; and Graphics. It offers GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms.
On July 23, 2024, NVDA announced a new NVIDIA AI Foundry service and NVIDIA NIM™ inference microservices to supercharge generative AI for the world’s enterprises with the Llama 3.1 collection of openly available models.
With NVIDIA AI Foundry, enterprises and nations can create custom “supermodels” for their domain-specific industry use cases using Llama 3.1 and NVIDIA software, computing, and expertise. Enterprises can train these supermodels with proprietary data as well as synthetic data generated from Llama 3.1 405B and the NVIDIA Nemotron™ Reward model.
On June 18, NVDA and Hewlett Packard Enterprise Company (HPE) announced NVIDIA AI Computing by HPE, a portfolio of co-developed AI solutions and joint go-to-market integrations that enable enterprises to accelerate the adoption of generative AI.
The new lineup marked the expansion of a decades-long partnership and reflects both companies' substantial commitment to time and resources.
NVDA’s trailing-12-month EBIT margin of 59.85% is significantly higher than the industry average of 5.03%. Its trailing-12-month Return on Total Capital of 61.54% is significantly higher than the industry average of 2.81%. Also, its 36.38% trailing-12-month levered FCF margin is 271.8% higher than the industry average of 7.79%.
For the first quarter that ended April 28, 2024, NVDA’s revenue increased 262% year-over-year to $26.04 billion. Its non-GAAP gross profit grew 328.1% from the prior year’s quarter to $20.56 billion. The company’s non-GAAP operating income of $18.06 billion indicates growth of 491.7% year-over-year.
Furthermore, the company’s non-GAAP net income came in at $15.24 billion or $6.12 per share, up 461.7% and 461.5% from the previous year’s quarter, respectively. Its free cash flow increased 465.9% from the year-ago value to $14.94 billion.
Analysts expect NVDA’s revenue and EPS for the second quarter (ending July 2024) to increase 110.9% and 135.9% year-over-year to $28.48 billion and $0.64, respectively. Also, the company has topped the consensus revenue and EPS estimates in all of the trailing four quarters.
NVDA’s shares have gained 104.8% over the past six months and 176.7% over the past year to close the last trading session at $122.59.
NVDA’s solid fundamentals are reflected in its POWR Ratings. It has an A grade for Quality and Sentiment and a B for Growth. The stock is ranked #25 out of 90 stocks in the Semiconductor & Wireless Chip industry.
Click here to access the additional NVDA ratings (Value, Momentum, and Stability).
Alphabet Inc. (GOOGL)
GOOGL is the powerhouse behind a spectrum of tech innovations and platforms worldwide. Its segments, spanning Google Services; Google Cloud; and Other Bets; cater to diverse digital needs and aspirations.
Like other Big Tech companies, GOOGL has been investing in artificial intelligence, a strategy that has helped drive demand for its cloud services. The company also offers internet services, subscription-based products, apps and in-app purchases, and licensing and research and development services.
On May 2, 2024, GOOGL and MongoDB, Inc. (MDB) collaborated to optimize Gemini Code Assist and provide enhanced suggestions for application development and modernization on MDB. MDB is the industry-leading developer data platform that millions of developers and tens of thousands of customers rely on every day for business-critical applications.
Through this collaboration, Gemini Code Assist can help developers get answers and information about MongoDB code, documentation, and best practices so they can more quickly prototype new features and accelerate application development.
GOOGL’s trailing-12-month EBIT margin of 30.49% is 241.8% higher than the industry average of 8.92%. Its trailing-12-month Return on Total Capital of 19.82% is 452% higher than the industry average of 3.59%. Also, its 17.31% trailing-12-month levered FCF margin is 107.9% higher than the industry average of 8.33%.
During the second quarter, which ended June 30, 2024, GOOGL saw robust growth, with revenues rising 13.6% year-over-year to $84.74 billion. Income from operations surged by 25.8% from the year-ago quarter to $27.43 billion, while net income soared to $23.62 billion, marking a 28.6% increase from the prior year’s quarter. Earnings per share for Class A, B, and C stock reached $1.91, up by 31.7% year-over-year.
For the quarter ending September 24, GOOGL’s revenue is expected to increase 11.7% year-over-year to $85.70 billion. Its EPS is expected to grow 17.3% year-over-year to $1.82. Moreover, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
GOOGL’s stock has soared 9.2% over the past three months to close the last trading session at $174.48.
GOOGL’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
The stock has an A grade for Sentiment and a B for Quality. It is ranked #11 in the 52-stock B-rated Internet industry.
Beyond what is stated above, we’ve also rated GOOGL for Momentum, Stability, Growth, and Value. Get all GOOGL ratings here.
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MSFT shares were trading at $428.81 per share on Wednesday afternoon, down $16.04 (-3.61%). Year-to-date, MSFT has gained 14.45%, versus a 14.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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