Historically, the U.S. stock market has proved to be a wealth-generating machine, especially for long-term investors.
Picking stocks of companies with sustainable competitive advantages and robust financial health helps create wealth that can be passed down through generations. Investors must focus on agile businesses adapting rapidly to the changing market environment and consumer preferences.
With these factors in mind, let's look at these two exceptional stocks that can help create generational wealth for the long-term investor.
Microsoft
Technology titan Microsoft's (NASDAQ: MSFT) revenue and earnings performance in the fourth quarter of fiscal year 2024 (ended June 30, 2024) surpassed consensus estimates. However, investors seem disappointed about the slower-than-expected growth of its Azure cloud computing business, which includes major artificial intelligence (AI) services and rapidly increasing AI-related capital investments.
While a pullback in share prices is normal, the long-term growth story of this technology giant and Azure cloud computing platform is intact. Azure and other cloud services revenue was up a healthy 29% year over year in the fourth quarter, with AI services contributing 8 percentage points of the overall growth rate. The company had 60,000 Azure AI customers at the end of the fourth quarter, up 60% on a year-over-year basis. Average spend per customer has also been rising at an impressive pace.
The growth attributed to AI services could have been even stronger without capacity constraints. Although the capacity challenges are expected to remain a headwind in the first half of fiscal 2025, Microsoft hopes to resolve these challenges and accelerate Azure's growth in the second half of fiscal 2025.
Azure is also cross-selling its AI-powered data services to Azure customers. In the fourth quarter, the number of Azure AI customers using Microsoft's data and analytics tools grew by a solid 50% year over year. Microsoft Fabric, the company's next-generation data platform, had 14,000 paid customers at the end of the fourth quarter.
Besides Azure, deep integration of AI is also helping drive demand for Microsoft's other core offerings. The demand for Microsoft's AI-powered assistant CoPilot is strong across various platforms. Since its general availability, GitHub CoPilot, an AI-powered developer tool, has been adopted by 77,000 organizations, up 180% year over year. CoPilot accounted for almost 40% of GitHub's $2 billion annual run rate in fiscal 2024. CoPilot is also driving usage of the company's Power platform, allowing anyone to create applications and build websites. The company had 48 million monthly active users for Power Platform at the end of fiscal 2024, up 40% year-over-year. CoPilot has also helped drive the adoption of Microsoft 365 productivity software, with the number of customers increasing by an impressive 60% quarter over quarter in the fourth quarter.
Finally, despite completing the acquisition of gaming behemoth Activision Blizzard and accelerating AI investments, Microsoft has demonstrated disciplined financial management. Revenue was up 15% year over year to $245 billion, while net income soared 22% year over year to $88.1 billion in fiscal 2024. The company's diversified business model across areas such as cloud computing, gaming, professional networking, and business applications plays a major role in risk management while providing multiple revenue streams.
Microsoft is currently trading at 13.15 times trailing-12-month sales, higher than its five-year average price-to-sales (P/S) ratio of 11.68x. However, with its multiple growth catalysts, the company seems a smart long-term pick even at current elevated valuation levels.
Salesforce
Shares of leading customer relationship management (CRM) player Salesforce (NYSE: CRM) saw a dramatic sell-off after the company came out with disappointing first-quarter fiscal 2025 results (ended April 30, 2024). The company faced multiple challenges including increased budget scrutiny, deal compression, and lengthening sales cycle, which negatively affected its revenue and current remaining performance obligations (cRPO) metrics. Despite these headwinds, there is still much to like about this stock.
Salesforce's Data Cloud, a rebranded form of the previous Customer Data Platform, is the fastest-growing product and can soon become a major growth catalyst. The product was included in 25% of all $1 million plus deals in the first quarter, while the company added over 1,000 data cloud customers for the second quarter in a row. Data Cloud enables Salesforce's clients to ingest, organize, and unify data across the company's cloud products (Sales Cloud, Service Cloud, Marketing Cloud) and third-party products of partners like Amazon , Snowflake , and Alphabet , to derive actionable insights.
Advanced AI models require huge amounts of data for effective training and inferencing. Salesforce currently manages 250 petabytes of data and handles the largest repository of front-office enterprise data and metadata globally. With new companies constantly adopting the Salesforce platform, the company's access to proprietary customer data has been increasing at an unprecedented pace. The company is leveraging these huge data troves and generative AI capabilities to provide its clients with highly personalized advanced analytics and automation tools. The company's other AI offerings, such as Einstein CoPilot and Einstein Studio, are also gaining traction and can soon prove to be major revenue drivers.
While Salesforce seems well positioned to emerge as a major AI player in the coming years, its current valuation does not reflect these tailwinds. The company is trading at just 6.98 times trailing-12-month sales, lower than its historical five-year average P/S multiple of 7.7 times and three-year average P/S multiple of 7.3 times. Considering the high probability of Salesforce becoming a major AI winner and its inexpensive valuation, long-term investors may want to pick up at least a small stake in this stock.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Salesforce, and Snowflake. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .
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