Microsoft’s (NASDAQ:MSFT) recent performance under the backdrop of Big Tech’s struggles to demonstrate AI profitability positions it in the market with solidity. Despite concerns over the broader tech sector’s capability to translate massive artificial intelligence (AI) investments into tangible returns, Microsoft has showcased progressiveness. This is particularly true with its Azure cloud platform.

In its Q4 Fiscal 2024, Microsoft’s annual top-line exceeded $245 billion, marking a robust 15% year-over-year (YOY) growth. Crucially, Microsoft Cloud’s revenue surpassed $135 billion, reflecting a 23% YOY revenue increase. This growth points to Microsoft’s sharp execution of its cloud strategy, which is driven significantly by advancements in AI integration across its services.

Microsoft’s flagship cloud computing service, Azure, saw accelerated share gains driven by AI advancements. The company expanded its global data center footprint, boosting capabilities crucial for long-term growth. Moreover, advancements like Azure Maia incorporate new AI accelerators from Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA). These advancements mark Microsoft’s focus on cutting-edge infrastructure to support AI-driven applications across industries. With that, Microsoft stock is a buy during the big tech weakness.

Microsoft CapEx Focuses on New AI Data Centers

Like the cloud infrastructure, the AI transition demands capital and knowledge-intensive investments. Microsoft Cloud’s gross margin was 70% down year over year due to the scaling of AI infrastructure. In H2 Fiscal 2025, Azure’s growth will accelerate as heavy investments boost available AI capacity to capture the growing AI demand.

Beyond infrastructure expansion, Microsoft’s Azure AI services have seen high adoption. With over 60,000 Azure AI customers, up nearly 60% YOY, and a growing average spend per customer, Microsoft is effectively monetizing its AI investments. The introduction of Models as a Service and enhancements in the Azure Intelligent Data Platform further solidify its position as a leader in AI-powered solutions.

Moreover, Microsoft’s success extends beyond Azure. GitHub Copilot, an AI-powered developer tool, has seen significant industry adoption, generating revenue growth for GitHub and enhancing developer productivity. Similarly, integrating AI in Dynamics 365 and Microsoft Teams highlights its focus on transforming business operations through AI-driven automation and productivity tools. Microsoft stock value potency is backed by solid performance and strategic AI investments against broader industry challenges.

Microsoft’s AI Growth: Promise vs. Profitability

Despite Microsoft’s strong performance, challenges and potential counterarguments warrant consideration. The broader tech sector’s struggles to demonstrate immediate returns on AI investments raise valid concerns about Microsoft’s long-term profitability from these ventures.

While Microsoft has driven growth in Azure and AI services, the endurance of this growth in countering competitive pressures remains to be determined. Its peers like Amazon (NASDAQ:AMZN), AWS, and Google (NASDAQ:GOOG) Cloud also heavily invest in AI infrastructure. With that, Microsoft must match CapEx and continuously differentiate itself to maintain its market lead.

Moreover, concerns over the scalability of AI solutions and their profitability persist. AI adoption across industries is still in its nascent stages. So, the timeline for widespread profitability remains ambiguous. However, Microsoft’s proactive approach to expanding its AI capabilities and leveraging its extensive customer base counters some of these short-term risks. The company’s diversified top-line, solid financials, and strategic acquisitions bolster its moat against industry headwinds. 

AI Growth Is A Long-term Game

Looking ahead, Microsoft’s strategic focus on AI integration and cloud expansion positions it favorably for sustained growth and market lead. Despite pressure from competitors and industry-wide obstacles, Microsoft’s Q4 Fiscal 2024 performance highlights its innovation and product development capabilities in the AI era.

Microsoft provides stability and growth potential in a volatile tech market with its strong financial fundamentals, which include double-digit sales growth and rising cloud revenue. The business’s investments in Dynamics 365, GitHub Copilot, and Azure AI demonstrate a visionary approach to leveraging AI-driven changes in various industries.

Overall, Microsoft stock is a buy. For FY2025, the company will continue to boost investments in the cloud and AI. Therefore, to capture extreme long-term AI demand based on first-mover advantages like NVIDIA, Microsoft, and other big tech companies need to sacrifice the bottom line to some extent (evident), so one should not panic over the short-term performance of big tech giants like Microsoft.

As of this writing, Yiannis Zourmpanos held long positions in AMD and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.