Got $5,000? 2 Growth Stocks Building the Software Backbone of Artificial Intelligence (AI).
By Google News AI ·
Artificial intelligence (AI) has been a gold mine for companies selling chips and building data centers. But without software, those AI chips don't really have anything to do.
That's why I think software stocks are as important as chipmakers and hyperscalers when you consider how to invest in the AI build-out. The more companies depend on AI, the more important those software services become.
Two companies that stand to benefit are Microsoft (MSFT -0.99%) and CrowdStrike (CRWD -0.14%). They approach AI from different directions, but both are already seeing growing demand for their products. With $5,000 to invest, I'd consider splitting my money equally between these two outstanding software stocks.
You likely already use Microsoft software, though you may not realize it. Microsoft makes some of the most popular software programs, such as Word, Excel, PowerPoint, and Outlook. All of them are available in the company's popular Microsoft 365 suite.
In addition, its Azure cloud platform supplies the infrastructure needed to develop and run AI applications. Azure AI Foundry provides tools for developers to build those applications, while GitHub Copilot helps them write code.
The strategy is paying off. In Microsoft's fiscal first quarter of 2027, which ended Sept. 30, Azure and other cloud services revenue increased 48% year over year to $33.16 billion.
Microsoft has also incorporated Copilot in its 365 software suite of office tools. During the quarter, Microsoft reported that daily Copilot users increased nearly 50% sequentially and more than fivefold year over year. The number of customers with more than 50,000 Copilot seats also increased more than eightfold year over year.
That's particularly encouraging because it demonstrates that businesses are willing to pay for AI capabilities within software they already use.
Microsoft reported $677 billion in commercial remaining performance obligations, representing contracted revenue that hasn't yet been recognized. That figure increased 73% year over year, although commitments from OpenAI contributed substantially to the growth.
If there's a downside to Microsoft stock now, however, it's in spending. Microsoft is dropping billions of dollars every quarter to satisfy AI demand. Capital expenditures reached $45.2 billion in the quarter, and management expects spending to increase to $50 billion in Q2.
Those investments are putting pressure on margins, and there's no guarantee they'll produce the returns investors expect.
Still, Microsoft generated $18.6 billion in quarterly free cash flow despite its spending. That gives the company considerable financial flexibility as it expands its AI business.
While AI offers businesses new opportunities to develop new products and work more efficiently, it also creates new opportunities for cybercriminals. And unfortunately, there are always bad actors looking for an opportunity to break the rules and make a quick buck.
Companies that deploy AI agents capable of accessing sensitive information and performing tasks without constant human supervision are susceptible to cyberattacks, and CrowdStrike addresses these risks through its Falcon cybersecurity platform.
During the company's fiscal second-quarter earnings call, CEO George Kurtz discussed the emerging market for AI detection and response (AIDR). He suggested that protecting AI agents could eventually become a larger business than traditional endpoint detection and response.
That's an…
Originally published by Google News AI
