1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
10-year Revenue CAGR: 10.94%
Microsoft Corporation (NASDAQ:MSFT) is a prominent American multinational technology company. It runs through three main business segments, Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.
The Productivity and Business Processes segment includes offerings such as Office Commercial, which covers Office 365 subscriptions and Microsoft Teams, and Office Consumer products like Microsoft 365 Consumer subscriptions. This segment also has LinkedIn and Dynamics 365, a collection of cloud-based applications designed for enterprise resource planning (ERP) and customer relationship management (CRM).
The Intelligent Cloud segment focuses on a range of server products and services, including public, private, and hybrid solutions. Major products of this segment are Microsoft Azure, SQL Server, and Windows Server, along with developer tools such as Visual Studio and GitHub.
The More Personal Computing segment features a variety of consumer-oriented products and services. This includes the Windows operating system, Surface devices, and Xbox hardware and content. It also includes search and news advertising through platforms like Bing and Microsoft Edge.
In the second quarter, 279 hedge funds held positions in Microsoft (NASDAQ:MSFT) and their stakes amounted to $89.068 billion. As of June 30, the Bill & Melinda Gates Foundation Trust is the most dominant shareholder in the company and has a position worth $15.6 billion.
Microsoft (NASDAQ:MSFT) is making significant strides in AI, a key area expected to drive future growth for the company. By partnering with OpenAI, the creator of ChatGPT, the company has strategically integrated advanced AI technology into its offerings. The recent fiscal fourth-quarter results highlight the impact of this focus as the Azure OpenAI service saw a 60% increase in customers year-over-year and reached 60,000. Additionally, the average spending per Azure AI customer is on the rise, which reflects the growing value businesses see in its AI solutions.
Beyond Azure, the company’s AI efforts are also flourishing across its other platforms. GitHub Copilot is already generating more revenue than GitHub did before Microsoft’s acquisition as per the company. Its Copilot AI assistant is now embedded in a range of products, from Microsoft 365 to Dynamics 365 and Power Platform. These integrations are driving transformation, particularly in Dynamics, where AI capabilities are improving business processes.
In terms of financial performance, Microsoft’s (NASDAQ:MSFT) largest revenue segment, the Intelligent Cloud, saw a 20% increase in the fourth quarter. This segment includes Azure, where AI services contributed significantly to this growth, accounting for 8% of the 29% year-over-year revenue rise in cloud services. The company expects that its investments in AI will continue to boost Azure’s growth in the second half of fiscal 2025.
Overall, the company’s focus on AI is not only enhancing its product offerings but also contributing to robust financial results. The company’s revenue for the fourth quarter was $245 billion, a 16% increase while operating income grew 24% year-over-year to $109.4 billion. With these strong financials and the ongoing expansion in AI, the company is one of the best beginner stocks to buy now as it capitalizes on the transformative potential of AI.
Baron Opportunity Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is the world’s largest software and cloud computing company. Microsoft was traditionally known for its Windows and Office products, but over the last five years it has built a $135 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. The stock contributed to performance because of continued strong operating results and investor enthusiasm regarding Microsoft’s leadership across the secular megatrends of AI and cloud computing. Recent business momentum continued to show evidence of the strength and attractiveness of Microsoft’s product portfolio among its customer set: (1) Azure OpenAI – its suite of AI services – is now used by 65% of the Fortune 100 and contributed 7% of Azure revenue (an annualized run rate of $5.2 billion); (2) GitHub Copilot – its AI code writing service – is bending the productivity curve for developers (reports of 40%- plus improvements in developer efficiency) and now has 1.8 million paid subscribers, with growth accelerating to over 35% quarter-over-quarter; and (3) Copilot Studio – its AI application service that makes it easier for anyone to build an application, automate a workflow, or create a Copilot using natural language. 30,000 organizations across every industry have used Copilot Studio to customize Copilot for Microsoft 365 or build their own, up 175% quarter-over-quarter. In the March quarter, Microsoft again reported better-than-expected financial results, highlighted by Microsoft Cloud growing 23% year-over-year, with the fastest commercial bookings in six quarters, and Azure accelerating to 31% constant currency growth, up from 28% in the previous quarter. June quarter guidance came in-line with consensus, but the company provided higher guidance for the most important segment, Intelligent Cloud, on the back of continued strong trends across Azure and Azure OpenAI. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes.”
While we acknowledge the potential of Microsoft Corporation (NASDAQ:MSFT) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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