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Tue, January 19 at 4:00PM ET

Microsoft Earnings: The Big Story Everyone Missed

Microsoft (NASDAQ:MSFT) is about to revolutionize everything — just like it did in the personal computer (PC) revolution of the 1980s and 1990s. Yet you’d never know if you just glanced at Microsoft earnings last week.

Sure, it was a good quarter. For Q2, Microsoft reported revenues of $33.7 billion, which is roughly 3% better than analysts had forecast. As for earnings, those came in at $1.37 per share — a 13.2% surprise to the upside. Guidance was about in-line with Wall Street expectations: the company is expecting $31.7-$32.4 billion next quarter.

However, in my opinion, the most important thing we heard from CEO Satya Nadella in the Microsoft earnings call was this:

“The quintessential characteristic for any application being built in 2019 and beyond will be AI [artificial intelligence].”

Why? Because that is the context of Microsoft’s new, $1 billion investment in a company called OpenAI.

As the name suggests, OpenAI researches artificial intelligence (AI). Its mission statement: “to ensure that artificial general intelligence [AGI] benefits all of humanity.” (We’ll take a look at this term, AGI, here in a minute.)

OpenAI started out as a nonprofit. But company management felt that this structure was holding it back. So, cofounder Sam Altman restructured it as “OpenAI LP” to attract major investment. Besides cash, Microsoft will provide the hardware. (OpenAI needs super-powerful computers to develop super-powerful AI.) Plus, everything will be stored in the Microsoft Azure cloud. In exchange, investors like Microsoft are promised returns up to 100 times what they invested.

That’s a big promise. But when you’ve got a huge, revolutionary technology — that’s par for the course. And as AI is applied to just about every major industry worldwide, the AI market is expected to grow from $21.46 billion in 2018 to $190.61 billion by 2025. So, today, I want to walk you through a few areas that are already being impacted by AI. That way, you’ll have an even better feel for why now is the time to invest in this world-changing technology.

Artificial Intelligence in a Nutshell

Most of us don’t have time to pore over white papers and look at all the intricacies of how artificial intelligence works. So, here’s a quick, bird’s-eye view of the current projects in the works:

Right now, scientists’ goals are as follows:

  • Get systems to perform tasks normally done by people — but without worrying about how human reasoning works.

This was OpenAI’s starting point, in which they built a system to crack a multiplayer video game called Defense of the Ancients 2.

  • Use human reasoning as a model, but not necessarily the end target.

Apple’s (NASDAQ:AAPL) Siri, Google’s (NASDAQ:GOOGL) Google Now and Microsoft’s Cortana are examples of this one. And the implications beyond strategy games and digital personal assistants are huge.

  • Artificial general intelligence (AGI), or a system that works like the human brain.

This is Sam Altman’s goal for OpenAI…although he acknowledges it’s an extremely ambitious one. However, by gathering enough data on human reasoning — and applying enough of Microsoft’s computer power — OpenAI thinks it’ll get there.

Let’s look at how this will work in the meantime — and how investors can start to cash in today.

Saving Time, Lives & Money

We’ll start with self-driving cars, because today it is probably the best-known application of AI.

When cars can truly drive themselves, and we’re all riding around in “robo-taxis,” the benefits to society will be remarkable:

  1. In urban areas, traffic will be reduced by about 30%, as reported by Inc.com.
  2. Land will be freed up, too. Newsweek reports that “there are more than a billion parking spaces in America. If autonomous vehicles are doing all the driving, we can get rid of 90% of them.”

That’s because:

  1. Most people won’t have to OWN a car at all — saving a ton of money. With a car that can drive itself off after you reach your destination, you can simply use a smartphone app to hail whatever car you want (BMW, Mercedes, Jaguar, Porsche…), whenever you want.

Without owning a specific car, you don’t have to pay the value of the car. You don’t have to pay the maintenance either. Money.com estimates it’ll save the average family thousands of dollars per year.

And most importantly…

  1. Self-driving cars are expected to reduce car-related deaths by up to 94%. That would be more than 350,000 lives saved over the next 10 years in the United States alone.

And finally, artificial intelligence can vastly improve our workdays as well.

Convenience & Efficiency

Can you imagine having every Friday off from work, but being just as productive and getting paid just as much? That’s what one Nobel Laureate, Joseph Stiglitz, predicts. He’s also a former chief economist at the World Bank, and he expects our standard work week to decline — just as it did after the Industrial Revolution. Specifically, he’s looking for now a 25- or 30-hour work week.

That goes for nearly every industry. But let’s look just at retail.

Grocery stores, home improvement stores, and pizza places — yes, even pizza is getting in on the action, namely Domino’s Pizza (NYSE:DPZ) — are investing in AI. Soon, when you call up your local Domino’s, an AI platform will take your order, and the humans can just go on making the pizzas.

Retail and restaurants have notoriously high overhead costs. By using AI for procurement, supply chain, logistics and theft reduction, companies could save more than $300 billion, according to a report by Capgemini.

AI will even allow Amazon (NASDAQ:AMZN) to operate physical stores. That’s right: the “killer” of brick-and-mortar retail is opening its own stores — with no checkout lanes. Instead, you’ll use a smartphone app to pick out your items, your Amazon account will be charged accordingly, and you’ll be in and out in a flash.

Now, Don’t Get Me Wrong

I am not recommending you rush out and buy AMZN or DPZ — at least not as your artificial intelligence play. For that, you want to own one well-established, but little-known name in computer hardware.

Because it’s the leader in its market, its products are going to be crucial in the AI revolution. That will be the stock that lets us cash in over the years to come — as AI revolutionizes transportation, healthcare, retail (and much more).

In Growth Investor, we made 274% the last time we owned it. And now I’m back for Round 2.

Go here to watch my presentation on the huge technological shift going on now. At the end, you’ll get the chance to hear my #1 investment in artificial intelligence — for free.

Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough StocksAccelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

Article printed from InvestorPlace Media, https://investorplace.com/2019/07/microsoft-earnings-the-big-story-everyone-missed/.

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