1) Microsoft Corporation (NASDAQ:MSFT)
10-Year Revenue Growth Rate: ~10.9%
10-Year Net Income Growth Rate: ~14.8%
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) is engaged in developing and supporting software, services, devices, and solutions worldwide.
Microsoft Corporation (NASDAQ:MSFT) has been pushing forward its cloud and artificial intelligence (AI) strategies. The company’s Azure cloud platform continues to be a central focus, with Wall Street analysts expecting a reacceleration in the latter half of FY 2025. This optimism stems from its significant investments in AI infrastructure and the expected rise in demand for AI-related cloud services. Experts opine that easing optimization pressures, renewed on-premises to cloud migration projects, and elevated consumption demands from LLMs and general AI applications should support Azure’s growth rate in the upcoming quarters.
Microsoft Corporation (NASDAQ:MSFT)’s diverse product portfolio should help the tech giant navigate the challenging environment, with Office 365 Commercial, in particular, being tagged as a major success story. It is also seeing positive trends in the Windows segment, with stabilized PC demand and the potential for growth due to the release of AI-enabled PCs and tablets. The strategic initiatives, like the integration of AI capabilities throughout product lines, should drive future growth.
As businesses continue to adopt AI technologies, Microsoft Corporation (NASDAQ:MSFT)’s Azure AI platform and related services might become an important driver of revenue growth. Furthermore, its partnership with OpenAI and its R&D efforts can result in breakthrough AI applications.
Analysts at Wells Fargo & Company increased their target price on the shares of Microsoft Corporation (NASDAQ:MSFT) from $500.00 to $515.00, giving an “Overweight” rating on 31st July. Baron Funds, an investment management company, released its third quarter 2024 investor letter. Here is what the fund said:
“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 $147 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. Shares gave back some gains from strong performance over the first half of this year. For the fourth quarter of fiscal year 2024, Microsoft reported a strong quarter with total revenue growing 16%, in line with the Street; Microsoft Cloud up 22%; Azure up 30%; 43% operating income margins; and 36% free cash flow margins. Core Azure growth came in one point shy of expectations, however, due to a soft European market and continued constraints on AI compute capacity. In the same vein, while Microsoft reiterated its fiscal 2025 targets of double-digit top-line and operating income growth, quarterly guidance called for Azure growth to slow a bit before accelerating in the back half of the fiscal year, as capital expenditures increase, yielding an expansion of AI compute capacity. We believe this investment is a leading indicator for growth, with more than half of the spend related to durable land and data center build outs, which should monetize over the next 15-plus years. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes, and we remain investors.”
While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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