2 ‘Magnificent Seven’ stocks to be purchased by AI in 2024

As a cloud leader serving the growing artificial intelligence (AI) market, microsoft (MSFT -0.61%) and Amazon (AMZN -0.17%) The two “Magnificent 7” stocks are among the most comfortable to buy and hold in almost any economy. They are currently experiencing increased demand for their cloud services business, which allows them to make relatively low-risk bets.

Most importantly, Microsoft and Amazon are generating growing free cash flow that can fuel investments in new AI tools for years to come. These two companies have huge customer followings and seem unstoppable as long-term investments. Here’s more on why we feel safe owning these two stocks in 2024 and beyond.

1. Microsoft

Interest in AI appears to be focusing greater attention on the advantages it offers large technology companies with their enormous profitability and cash resources. While smaller software startups in the AI ​​space are losing money, Microsoft can deliver new AI features while making a profit.

There are currently 53,000 customers using AI in their Azure cloud business, more than a third of whom say they used Azure for the first time in the last year. Azure is quickly gaining share of the cloud market and may soon give cloud leader Amazon Web Services (AWS) a run for its money.

The early success of Microsoft 365 Copilot, which uses generative AI to inform users, gives executives confidence in future revenue opportunities.

The company is already a very profitable business, generating $227 billion in revenue and $67 billion in free cash flow over the last four quarters. But analysts Goldman Sachs Microsoft’s AI Azure service alone is expected to reach $200 billion in annual revenue within the next five years.

The emergence of AI plays directly with the strengths of the company’s leadership in software. Adding AI to its productivity suite (e.g. Word, Excel) and cloud services has significant upside potential for Microsoft’s earnings and stock performance over the next decade.

2. Amazon

Amazon, like Microsoft, sees the same need for AI in its cloud business. with these two companies alphabetof Google Cloud are among the top three companies that are likely to continue to dominate the AI ​​services market in the long term.

What makes Amazon stand out is its dominant e-commerce business, which can use AI capabilities to strengthen its advantage over rival retailers. Management said in its fourth-quarter earnings report that generative AI is an area it will continue to focus on.

New AI tools, like the recently announced Rufus shopping assistant, can improve the search experience by helping customers find exactly what they’re looking for and increasing traffic and order frequency, increasing your competitive advantage.

Amazon’s cloud business gives it a huge advantage by using AI to transform its retail business in ways that other retailers can’t match.

We are already reworking our cost structure to increase cash resources for future investments. Amazon has been streamlining inventory sorting across regional fulfillment centers to lower costs and increase profits. Over the past four quarters, it generated $574 billion in revenue and $32 billion in free cash flow.

There’s more to it than just Rufus. Amazon has a huge amount of customer data that will lead to more tools to improve the shopping experience. “We believe this will ultimately generate tens of billions of dollars in revenue for Amazon over the next few years,” CEO Andy Jassy said, commenting on the opportunity to transform customer experiences through AI.

For this reason, stocks are surging back toward previous highs and will almost certainly hit new highs over the next decade. The $5 trillion and growing global e-commerce market itself presents ample opportunity for Amazon to enjoy significant long-term growth.