History Suggests Dow Jones Could Rise: Two Top Artificial Intelligence Stocks to Buy Now in a Bull Market

Since entering a bull market in October 2022, theDow Jones Industrial Average (DJINDICES: ^DJI)It has risen 33%, but over the past 50 years, the average return of the index during bull markets has been 1,72%, and these gains have been realized in about 60 months. This means that there is a lot of room for improvement in the next few years.

Of course, we can't guarantee that the previous bull market will follow history, but since the Dow Jones tracks 30 blue chips (i.e., quality companies), it should still produce decent returns. Investors can buy todayMicrosoft (NASDAQ resonance code: MSFT)respond in singingSalesforce (New York Stock Exchange)stock (market)(Code: CRM)The stock is a good way to benefit from this upward trend.

1. Microsoft

Microsoft makes money in a variety of ways, but software and cloud services are core growth engines, and the company has a strong presence in both areas. According toOktaMicrosoft 365 is the most popular enterprise application suite in all categories, reflecting Microsoft's strength in office productivity, communications and network security software. Microsoft is also the market leader in enterprise resource planning software.

Meanwhile, the company's share of the cloud computing space continues to grow. In the fourth quarter, Microsoft Azure accounted for 24% of cloud infrastructure and platform services revenue, up nearly two percentage points from the same period last year. Chief Executive Officer Satya Nadella attributed these share gains to the strength of the artificial intelligence (AI) side of the equation, telling analysts, "Azure delivers top-tier performance for AI training and reasoning, and offers the most diverse selection of AI gas pedals, includingAMDrespond in singingNvidia's latest product, as well as our own first-party chip, Azure Maia.

Microsoft Corporation announced strong financial results for the second quarter of fiscal year 2024 (ended December 31), with results exceeding expectations. Revenues increased 181 TP3T to $62 billion and Non-GAAP net income increased 261 TP3T to $2.93 per diluted share. Investors should keep in mind that Microsoft completed its $75.4 billion acquisition of Activision Blizzard in the second quarter, adding $2.1 billion, or 4 percentage points, to revenue.

The acquisition gives Microsoft control of popular games such as Call of Duty, Overwatch, and World of Warcraft, which will undoubtedly be a plus since the company already accounts for between 60% and 70% of cloud gaming revenues, a market that is expected to grow at an annual rate of 45% by 2030. The market is expected to grow at an annualized rate of 45% by 2030, but the much larger market for enterprise software-as-a-service (SaaS) and cloud computing means that Microsoft's ability to grow in these business areas will have an even greater impact on its future success.

On that front, the enterprise software-as-a-service (SaaS) and cloud computing services market is expected to grow at a rate of 14% per year through 2030, and Wall Street expects Microsoft's sales to grow at the same rate over the next five years. However, with the help of artificial intelligence, the company's industry results could exceed this consensus estimate.

Specifically, as the exclusive cloud provider of OpenAI, Microsoft benefits not only from having ChatGPT running on its infrastructure, but also from the ability for Azure customers to build custom applications using the underlying model.Wells Fargo) analysts believe this could add up to $15 billion in revenue in the future. In addition, its new generative AI assistant, Microsoft 365 Copilot, could generate $10 billion in revenue annually by 2026, according to analysts at Piper Sandler.

Regardless, Microsoft's current valuation of 14x sales is acceptable. Investors should feel comfortable buying a small portion of Microsoft stock today because it is a $3.1 trillion company. In other words, while I believe the stock will outperform the Dow over the next five years, investors should have moderate expectations.

2. Salesforce

Salesforce provides customer relationship management (CRM) software. Its product set includes marketing, sales, and customer service applications, as well as application development, data integration, and analytics tools. Collectively, the platform helps organizations increase productivity and build customer loyalty.

As far as possible, Gwen has been working with Microsoft andoracle bone inscriptions (an early form of Chinese script)Salesforce continues to dominate the CRM market, competing with other software giants. According to International Data Corp, as of the first half of 2023, Salesforce's share of CRM spending was 22%, more than the combined total of the next four companies, said CFRA analyst Angelo Zino. Salesforce has achieved this success through years of deep innovation and successful acquisitions, and now offers the "most comprehensive and feature-rich" customer relationship management platform on the market.

Salesforce had a strong fourth quarter. Revenue increased 111 TP3T to $9.2 billion and non-GAAP net income increased 361 TP3T to $2.29 per diluted share, as sales of data management and analytics products grew particularly strongly. Investors can expect similar growth momentum in the future. The CRM market is expected to grow at a CAGR of 14% by 2030 as organizations invest in digital transformation to reduce costs and improve customer capabilities.

Salesforce also has incremental opportunities through Data Cloud and Einstein Copilot. The former is a customer data platform (CDP) that allows organizations to unify data from any source and use it in a customer relationship management platform. The latter is a data cloud-based generative AI assistant that can answer questions, summarize content, and perform tasks automatically. It is worth noting that consulting firmsGartner (name)Salesforce was recently recognized as a leader in the CDP market, and Marc Benioff, the company's chief executive officer, said the data cloud is the fastest-growing product in the company's history.

Wall Street sees Salesforce's revenues growing at an annualized rate of 10% over the next five years, but that number could still rise if the company simply maintains its CRM market share. If Salesforce's push to the Data Cloud and Einstein Copilot are widely adopted, then it could also significantly exceed this expectation. With that in mind, the current valuation of 8.5x sales is a reasonable price.

It's important to note that Salesforce and Microsoft are in a similar position in that both stocks have the potential to outperform the Dow over the next five years, but I doubt either will crush the market in the meantime. In other words, any excess returns are likely to be modest. I mention this not to discourage potential investors, but to make the point that these are slow and steady stocks, not wobbly ones.

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Wells Fargo is an advertising郃 partner of The Ascent, a division of the Motley Fool. Trevor Jennewine holds positions in Nvidia and Okta. The Motley Fool holds recommended positions in Advanced Micro Devices, Microsoft, Nvidia, Okta, Oracle, and Salesforce. The Motley Fool recommends Gartner, and recommends the following options: long Microsoft January 2026 $395 calls and short Microsoft January 2026 $405 calls. The Motley Fool has a disclosure policy.

History Suggests Dow Jones Could Surge: Two Top AI Stocks to Buy Now or Hold in a Bull Market was originally published by The Motley Fool.