2. Microsoft Corporation (NASDAQ:MSFT)
Short Interest as % of Shares Outstanding: 0.74%
Number of Hedge Fund Investors In Q2 2024: 279
Microsoft Corporation (NASDAQ:MSFT) is the global leader in cloud computing and artificial intelligence technologies. Its enterprise computing business accounted for $28.4 billion of its $64 billion in FY24 revenue, underscoring the importance of this business to Microsoft Corporation (NASDAQ:MSFT)’s hypothesis. Since it’s one of the biggest enterprise and cloud computing companies in the world, Microsoft Corporation (NASDAQ:MSFT) also benefits from the ability to enable car companies to develop their autonomous driving software. Currently, the firm directly serves the needs of the autonomy industry through Microsoft AVOps which enables customers to develop automated driving solutions through the Azure platform. Microsoft Corporation (NASDAQ:MSFT)’s heft, as evidenced by its $ in cash and equivalents also helps it invest in other companies. On this front, it, along with NVIDIA and Softbank invested $1 billion in the British self driving firm Wayve. Microsoft Corporation (NASDAQ:MSFT)’s reliance on the cloud for its earnings, and its aggressive investments in AI (CapEx was $55.7 billion in FY24) also means that if it fails to generate AI revenue, then the stock could suffer as investors punish it for inefficient capital allocation.
Fred Alger Management mentioned Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter. Here is what the fund said:
“Microsoft is a beneficiary of corporate America’s transformative digitization. The company operates through three segments: Productivity and Business Processes (Office, LinkedIn, and Dynamics), Intelligent Cloud (Server Products and Cloud Services, Azure, and Enterprise Services), and More Personal Computing (Windows, Devices, Gaming, and Search). During the quarter, shares contributed to performance after the company reported strong fiscal third quarter results, underscoring its leadership position in the cloud and highlighted its role as a primary facilitator and beneficiary of AI adoption. Company revenue growth, operating margin, and earnings growth surpassed consensus expectations. The utility scale Azure cloud business grew 31% in constant currency of which 7% was AI related versus 3% two quarters ago. Further, management noted most of the AI revenue continues to stem from inference rather than training indicating high quality AI applications by Microsoft’s clients. Management also indicated that the significant cost-cutting programs in corporate America are done, suggesting that the cost optimization headwinds previously impacting Azure’s growth are over. Separately, management provided color on their new AI-productivity tool, Copilot, noting that approximately 60% of Fortune 500 companies are already using Copilot, and that the quarter witnessed a 50% increase in Copilot assistance integration within Teams. We continue to believe that Microsoft has the potential to hold a leading position in AI, given its innovative approach and demonstrated high unit volume growth opportunity.”
