2 Soaring Stocks With More Upside Ahead to Buy and Hold

Software stocks are going through a rough patch. Some investors believe that many of their services will be replaced by artificial intelligence (AI). However, several software companies are showing that they can not only coexist with AI but also use the technology to improve their businesses. That's the case with Microsoft (NASDAQ: MSFT) and Shopify (NASDAQ: SHOP). Both companies recently soared following their quarterly updates. Here is why there may be more upside ahead.

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1. Microsoft

Microsoft was founded in 1975. Since then, it has had to navigate several important technological changes and revolutions that threatened its business. Yet, the company still stands. Microsoft has adapted and thrived through such periods of rapid change before, and, in my view, it can do the same again.

The company's latest financial results -- for the fourth quarter of its fiscal year 2026, which ended June 30 -- provided further evidence of the business's resilience. Microsoft's revenue increased 18% year over year to $90 billion, while earnings per share jumped 32% to $4.81.

Microsoft Cloud was a particularly strong performer, posting 27% year-over-year sales growth, with Azure doing even better, registering a 43% sales increase compared to the year-ago period. Management pointed out that AI was one of the driving forces behind the company's strong showing.

There is more where that came from. Microsoft ended the period with a $678 billion cloud backlog, up 84% year over year. This points to sustained demand for its cloud services. Meanwhile, Microsoft is slowly improving the economics of its most important segment. The company is doubling down on internally developed AI chips rather than relying solely on external suppliers.

These efforts could help the company decrease costs and improve profits and margins. All that is to say, Microsoft's business isn't in trouble at all, quite the contrary. Some may argue that the stock is too expensive. It is trading at 25.7x forward earnings, versus an average of 21.4x for information technology stocks.

However, with accelerating Azure sales growth, a significant cloud backlog, and additional AI initiatives that could further improve the business, the company could sustain strong earnings growth over the next few years and justify its premium. The stock is still a buy.

2. Shopify

Shopify posted outstanding second-quarter financial results. The company's revenue jumped 34% year over year to $3.6 billion, and its net income (excluding the impact of equity investments) was $439 million, up 30% compared to the prior-year quarter. The company's guidance for the third quarter was strong as well. Shopify expects revenue growth in the low thirties.

So, the company could maintain the pace of growth we saw during the second quarter. Shopify noted that AI-powered efforts are helping drive more traffic, including from AI search channels, to its merchants' stores. This contributed to an increase in the company's gross merchandise volume and revenue. Shopify also offers other AI tools, including an AI assistant that helps merchants run their stores more efficiently by analyzing data, answering questions, and performing a variety of tasks to simplify their work.

Shopify is successfully integrating AI across its platform, and investors should expect more of the same in the future. Still, some may point out that Shopify is trading at 80.7x forward earnings. Could the stock still deliver superior returns from current levels? In my view, it can. There is a large worldwide opportunity remaining in the e-commerce market. Shopify has arguably barely started to tap into it. After all, even in the U.S., e-commerce accounted for 16.9% of retail sales in the first quarter.

It may never reach 100%, but it will probably eventually climb to 20%, 30%, perhaps even much higher. And as it does, Shopify should be one of the biggest winners, given its current position in the field and wide moat from high switching costs. And here, we are only talking about the U.S. market. Shopify has historically commanded a premium for a good reason, and it may still deliver strong returns over the long run for patient investors, as it makes headway into its large addressable market.

Prosper Junior Bakiny has positions in Shopify. The Motley Fool has positions in and recommends Microsoft and Shopify. The Motley Fool has a disclosure policy.