4. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Investors in Q2 2024: 279
Short Interest as % of Shares Outstanding: 0.74%
Microsoft Corporation (NASDAQ:MSFT) is the second largest cloud computing company in the world in terms of market share. It commands 23% of the market, and as opposed to Amazon, Microsoft Corporation (NASDAQ:MSFT) also benefits from the fact that it is a software centered firm through its Windows OS that powers most of the world’s computers. This offers Microsoft Corporation (NASDAQ:MSFT) significant advantages in software development, and it has leveraged these on the cloud front through Copilot. Copilot is Microsoft Corporation (NASDAQ:MSFT)’s AI assistant that enables users to conduct a variety of tasks, including programming. This stands to upend the cloud computing business, and particularly the SaaS front as companies might start developing their own software cost effectively to significantly reduce the market for SaaS products. Microsoft Corporation (NASDAQ:MSFT)’s Azure also offers it a wide customer base to target its AI products, which enables it to capitalize on the hype through an existing customer network as opposed to landing new deals. At the same time, the pressure on Microsoft Corporation (NASDAQ:MSFT) to deliver revenue growth and maintain Azure’s momentum is high, as shown during its latest earnings when the shares dropped by 8% after it shared that Azure growth had slowed down by a mere two percentage points to 29%.
Microsoft Corporation (NASDAQ:MSFT) chief Satya Nadella shared key details for Copilot and SaaS deals during the Q4 2024 earnings call:
“So to me, look, at the end of the day, GenAI is just software. So it is really translating into fundamentally growth on what has been our M365 SaaS offering with a newer offering that is the Copilot SaaS offering, which today is on a growth rate that’s faster than any other previous generation of software we launched as a suite in M365. That’s, I think, the best way to describe it. I mean the numbers I think we shared even this quarter are indicative of this, Mark. So if you look at it, we have both the landing of the seats itself quarter-over-quarter that is growing 60%, right? That’s a pretty good healthy sign. The most healthy sign for me is the fact that customers are coming back there.
That is the same customers with whom we landed the seats coming back and buying more seats. And then the number of customers with 10,000-plus seats doubled, right? It’s 2x quarter-over-quarter. That, to me, is a healthy SaaS core business. And on top of that, some of the things that Amy shared around Dynamic. That’s another exciting place for us, which is one, we are gaining share. We are – Dynamics with the GenAI built-in is sort of really biz app, it’s probably the category that gets completely transformed with GenAI. Contact centers being a great example. We ourselves are on course to save hundreds of millions of dollars in our own customer support and contact center operations. I think we can drive that value to our customers. And then on the Azure side, you see the numbers very clearly.
In fact, I think last quarter is when we started giving you that. You saw an acceleration of that this quarter. One of the other pieces, Mark, is AI doesn’t sit on its own, right? So it’s just for – we have a concept of design wins in Azure. So in fact, 50% of the folks who are using Azure AI are also using a data meter. That’s very exciting to us because the most important thing in Azure is to win workloads in the enterprise. And that is starting to happen. And these are generational things once they get going with you. So that’s, I think, how we think about it at least when I look at what’s happening on our demand side.”
