The Microsoft share price surges after results. Is this the best AI stock to buy?

Jon Smith flags up the jump in the Microsoft share price after the latest results showed strong demand for AI in the most recent quarter.

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It’s been a wild week for earnings releases in the US. Some US stocks, like Tesla, saw their share prices rocketing, while others, like Intel, saw the opposite. As we finish up a busy week, I can’t ignore the Microsoft (NASDAQ:MSFT) share price jump after hours following the release of a strong set of results. Here’s everything I need to know.

Key stats from the release

Let’s start with the basic numbers from the report. Revenue was $61.9bn, which was an increase of 17% versus the same quarter last year. This helped to filter down to $21.9bn worth of net income, which was a 21% increase.

The results were made up of solid growth from all divisions. However, it was in the Cloud area, including the artificial intelligence-related Azure computing platform, that was most in focus. Fortunately, this area did well, with revenue at Azure up by 31%.

This is really important because of the buzz that AI is generating. It’s the hot topic in the stock market right now, with any firm that’s able to make use of it being on investors’ buying lists.

However, it wasn’t all sunshine and rainbows. Operating expenses rose by 10% year on year, although this large increase is being flagged in part to the Activision acquisition.

A big push on AI

The main reason why the share price was up 4% in after-market trading was due to the link to AI. The fact that the AI-associated arm of Microsoft beat revenue expectations will have excited investors tremendously.

Further, CFO Amy Hood commented that “near-term AI demand is a bit higher than our available capacity.” Some would see this as a concern going forward. The firm is trying to address this via increasing capex spending on infrastructure. Whereas normally increased spending would be seen as a negative, in this case it’s been taken well because it should help to fuel more AI-related growth.

I think some investors see Microsoft as the best AI stock out there. After all, don’t forget that ChatGPT is in partnership with Microsoft, with the latter having invested billions in the former. Given that ChatGPT kicked off the whole AI frenzy, the connection between the two is something that can’t be ignored.

Trying to pick a winner

It’s a big crown for me to give Microsoft as being the best AI stock to buy right now. I think it’s too early to say which of the big tech firms is the AI leader. Naturally, Nvidia is doing the best, but that’s more from a chip and processor perspective. In terms of utilising AI, the race is on between Meta, Alphabet, Microsoft and others.

I’ve got exposure to AI in my portfolio, but am going to sit on my hands for the moment in terms of buying Microsoft shares. The stock is up 35% over the past year, but I want to see in the coming months which firm starts to pull clear of the rest. At that point, I’ll buy what I hope is the right one!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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