In this article, we will discuss the 10 Best Fundamental Stocks to Invest In.
As per Ameriprise Financial, the broader stock market continued to climb in Q3 2024, despite surprises that occurred on the way. Particularly, the stocks were resilient during September. In July, weaker-than-anticipated jobs data raised concerns that the US labor trends have been slowing faster than expected. As a result, there were worries that the US Fed left the rates too high for too long. Furthermore, in August, an unexpected increase in the rate from the Bank of Japan weighed over the global stocks for a brief period.
Moving forward, the results of the US Presidential election are likely to decide the course of the broader market in 2025. As per Fidelity Investments, the November election outcomes should shape the economic policy debate in 2025. Some of the examples of proposals from the Republican party consist of corporate tax cuts and lower regulatory pressures on some industries, but elevated tariffs and tighter immigration restrictions can be inflationary. Democratic party proposals consist of a focus on increasing taxes to finance public spending.
Fidelity Investments added that the fiscal deficit is expected to remain large over the upcoming several years (6%–7% of GDP), with interest payments grabbing an even larger share of the overall federal budget.
Q4 2024: What Lies Ahead?
Ameriprise Financial believes that, economically, the US consumer and business activity has demonstrated signs of healthy moderation in Q3, with inflation ebbing lower and labor/spending/savings trends slowing but staying firm throughout the quarter. The corporate profits saw a healthy growth in H1 2024 and this trend is likely to continue in H2 2024. The labor conditions are expected to remain healthy. Overall, the investment firm believes that the macroeconomic backdrop might remain strong and supportive for asset prices in Q4, outside of periods of brief volatility.
Another factor that should help companies and broader equities is an expectation that inflation and interest rates are on the path to move lower. After reducing the policy rate by a strong 50 bps in September, the US Fed might cut its policy rate by at least another 50 bps before 2024 ends. The September cut was the first since 2020 and likely concludes an aggressive rate-hiking cycle. As per the Fed projections, the policymakers might continue to cut rates through 2024-end and into 2025, supporting growth and labor moving forward.
While some sort of weak seasonality factors might be visible in Q4, Ameriprise Financial highlighted that S&P 500 managed to deliver an average return of ~4.2% in the fourth quarter since 2000 and an average of ~9.8% over the last 5 years.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
The Case For a Soft Landing
The IMF’s chief economist hinted that the US remains close to achieving a “soft landing” by navigating challenges, such as inflation, without prompting a prolonged recession. While global growth is slowing, the US is still a positive exception. The inflation in the US appears to be easing towards the US Fed’s target, and the labor market, despite some cooling, remains resilient. As per State Street Global Advisors, despite the US election uncertainty and Middle East geopolitical tensions, the US Fed’s dovish pivot and still-solid US economy continue to make the case for a soft landing.
IMF’s chief economist stated that, globally, an inflation picture seems to be coming very close to central bank targets in the course of the next year. Also, several supply-side factors are aiding the US economy, including good US productivity data, and a significant increase in the number of foreign-born workers, which supported spurring growth without driving inflation.
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Our Methodology
To list the 10 Best Fundamental Stocks to Invest In, we conducted extensive research using Finviz screener and online rankings. To select the stocks, we chose companies with stable and reliable 10-year revenue and net income growth rates. We also mentioned the hedge fund sentiment around each stock, as of Q2 2024. Finally, the list has been arranged in the ascending order of their hedge fund holdings.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Fundamental Stocks to Invest In
10) The TJX Companies, Inc. (NYSE:TJX)
10-Year Revenue Growth Rate: ~7.03%
10-Year Net Income Growth Rate: ~8.14%
Number of Hedge Fund Holdings: 56
The TJX Companies, Inc. (NYSE:TJX) operates as an off-price apparel and home fashion retailer in the US, Canada, Europe, and Australia.
Over the long-term, The TJX Companies, Inc. (NYSE:TJX)’s top line and bottom line growth is expected to stem from its global scale and cost advantages. Furthermore, its growth prospects are expected to be aided by the consumers’ focus on value and trade-down behavior. Wall Street analysts see The TJX Companies, Inc. (NYSE:TJX) as an important player in the post-department store retail world as it will serve as a marketplace for brands and a destination for consumers who are value-conscious. This positioning enabled the company to maintain strong relationships with vendors and secure favorable inventory deals.
The TJX Companies, Inc. (NYSE:TJX) has been focusing on top-line growth without compromising customer experience, which remains critical for market share gains. Moreover, the company has been exploring opportunities throughout various product categories, with particular optimism around Home segment.
The TJX Companies, Inc. (NYSE:TJX)’s off-price model is defensive and capable of performing well even when consumer spending is low. Its ability to offer value to consumers throughout different income levels places it well to capture market share in strong and weak economic environments. As traditional retailers decrease their presence, the company is expected to capture displaced customers who are seeking branded merchandise at discounted prices.
Analysts at UBS Group upped their price target from $134.00 to $148.00, giving a “Buy” rating on 22nd August. Madison Investments, an investment advisor, released its Q2 2024 investor letter. Here is what the fund said:
“The TJX Companies, Inc. (NYSE:TJX), an off-price retailer, continues to do well. Its value-based retail stores are resonating with consumers given the backdrop of higher inflation, which led to strong revenue and profit growth in the most recent quarter.”
9) Accenture plc (NYSE:ACN)
10-Year Revenue Growth Rate: ~8.02%
10-Year Net Income Growth Rate: ~9.4%
Number of Hedge Fund Holdings: 68
Accenture plc (NYSE:ACN) offers management and technology consulting services and solutions.
Accenture plc (NYSE:ACN)’s long-term growth strategy is expected to be aided by its intangible assets, mainly derived from its reputation and expertise. Furthermore, it benefits from switching costs. Accenture plc (NYSE:ACN) remains optimistic about leveraging digital transformation for healthy growth in FY 2025. Moreover, the long-term debt markets might be tapped to enhance liquidity while, at the same time, keeping a low net leverage ratio.
Wall Street believes that Accenture plc (NYSE:ACN)’s strong acquisition capabilities and the integration of GenAI should enhance efficiency and customer engagement. With a strong emphasis on helping clients in their digital transformation journeys, Accenture plc (NYSE:ACN) is well-placed to continue its growth trajectory into FY 2025, thanks to its strong consulting book-to-bill target and managed services growth.
As the company looks forward, the transition to GenWizard technology, together with a strong emphasis on talent acquisition and innovation, should fuel success in the coming fiscal year. For fiscal year 2025, Accenture plc (NYSE:ACN) expects revenue growth of 3% – 6% in local currency and GAAP EPS of $12.55 – $12.91, reflecting a rise of 5% – 8% from adjusted EPS for fiscal 2024.
Aoris Investment Management, a specialist international equity manager, released its Q2 2024 investor letter. Here is what the fund said:
“The largest detractors for the quarter were Accenture plc (NYSE:ACN) and CDW Corp, which both fell by around 14%. Accenture and CDW are currently experiencing flattish years in terms of revenue and earnings growth. This follows a period of post-pandemic elevated demand. We believe both companies continue to gain market share.
Accenture is the world’s largest IT outsourcing and consulting company. While earnings in its quarter ended May was essentially flat, we were very encouraged by underlying demand. This demand strength is reflected in a 22% year-on-year increase in client bookings for the quarter. Further, the number of $100m+ contracts signed in the nine months to May was 92, up from 85 in the same period a year earlier. All this bodes well for Accenture’s revenue and earnings in the next few years.”
8) Costco Wholesale Corporation (NASDAQ:COST)
10-Year Revenue Growth Rate: ~8.4%
10-Year Net Income Growth Rate: ~13.6%
Number of Hedge Fund Holdings: 71
Costco Wholesale Corporation (NASDAQ:COST) is engaged in the operation of membership warehouses in the US, Puerto Rico, Canada, Mexico, Japan, the UK, Korea, Australia, Taiwan, China, Spain, France, Iceland, NZ, and Sweden.
Costco Wholesale Corporation (NASDAQ:COST)’s long-term growth trajectory is expected to be aided by its cost advantage and intangible assets.
The company has been expanding its digital capabilities, which include partnerships with platforms such as Uber. Such initiatives form part of Costco Wholesale Corporation (NASDAQ:COST)’s broader strategy to enhance omnichannel presence and cater to changing consumer preferences. The company’s digital enhancements offer a significant opportunity for long-term growth. The expansion of Costco Wholesale Corporation (NASDAQ:COST)’s e-commerce platform offers additional revenue streams and strengthens its competitive position.
The membership trends should continue to form the basis of the company’s business model. Its membership model demonstrates a strong connection with its customer base. It also offers a solid foundation for sustained growth and profitability. The high renewal rates and steady membership growth exhibit customer loyalty and a recurring revenue stream which should insulate the company from short-term economic fluctuations.
Moreover, the company’s continued investment in e-commerce capabilities offers significant growth opportunities. The expansion of digital initiatives, such as partnerships with delivery services and enhanced online offerings, places Costco Wholesale Corporation (NASDAQ:COST) to tap larger share of the growing e-commerce market. Parnassus Investments, an investment management company, released Q2 2024 investor letter. Here is what the fund said:
“Costco Wholesale Corporation (NASDAQ:COST) posted strong results for the third quarter of fiscal 2024, with a robust increase in net sales and strength in both U.S. and international markets. Bucking the trend of weakening demand for discretionary items that has pressured many other retailers, Costco reported growth in nonfood sales.”
7) Applied Materials, Inc. (NASDAQ:AMAT)
10-Year Revenue Growth Rate: ~11.8%
10-Year Net Income Growth Rate: ~22.2%
Number of Hedge Fund Holdings: 77
Applied Materials, Inc. (NASDAQ:AMAT) is engaged in the provision of manufacturing equipment, services, and software to the semiconductor, display, and related industries.
Applied Materials, Inc. (NASDAQ:AMAT)’s growth trajectory should further strengthen as a result of its competitive advantages. These include intangible assets regarding wafer fabrication equipment design expertise and R&D, and cost advantages. The semiconductor capital equipment (SCE) sector continues to transition to a period of high single-digit growth and industry fundamentals are looking positive. The growth should stem from primary secular trends such as larger chips and increased demand for trailing node technology. Wall Street believes that Applied Materials, Inc. (NASDAQ:AMAT) should benefit from such trends, mainly in areas like advanced packaging and Gate-All-Around (GAA) technology.
Experts believe that the company should be able to outperform the WFE industry in 2024 as a result of its exposure to leading-edge foundry/logic and DRAM technologies. Applied Materials, Inc. (NASDAQ:AMAT)’s focus on areas with incremental spending, like GAA, HBM, backside power, and advanced packaging, should drive market share gains in 2024 and 2025.
The company’s robust product lineup, mainly in areas like GAA technology and advanced packaging, aligns with the broader industry’s move towards more sophisticated chip designs. As demand for high-performance computing and AI grows, Applied Materials, Inc. (NASDAQ:AMAT)’s expertise in these advanced technologies should drive revenue growth.
Wall Street analysts believe that the shares of the company have an average price target of $242.95. Parnassus Investments, an investment management company, released the second quarter 2024 investor letter. Here is what the fund said:
“Applied Materials, Inc. (NASDAQ:AMAT) is the world’s largest supplier of wafer fabrication technologies used in semiconductor manufacturing. The company reported solid earnings for the quarter, and investors believe Applied Materials should continue to benefit from accelerated industry spend due to AI and share gains.”
6) ASML Holding N.V. (NASDAQ:ASML)
10-Year Revenue Growth Rate: ~15.5%
10-Year Net Income Growth Rate: ~16.0%
Number of Hedge Fund Holdings: 81
ASML Holding N.V. (NASDAQ:ASML) is engaged in developing, producing, marketing, selling, and servicing advanced semiconductor equipment systems for chipmakers.
ASML Holding N.V. (NASDAQ:ASML)’s competitive advantages stem from its intangible assets, cost advantages, and switching costs. The company’s position as the leading provider of lithography tools for semiconductor manufacturing is expected to remain unchallenged. ASML Holding N.V. (NASDAQ:ASML) forms an integral part of the production of advanced chips used in numerous applications, such as AI and high-performance computing.
The company’s continued investment in R&D is critical for maintaining its technological edge. It has been working on next-generation high-NA EUV systems, which should result in even greater precision in chip manufacturing. Wall Street expects that High Bandwidth Memory (HBM), which is a critical component in AI applications, should fuel strong demand for the company’s advanced lithography systems. This trend is expected to offset weaknesses in other market segments.
The surge in AI applications continues to drive increased demand for specialized chips, offering a significant opportunity for ASML Holding N.V. (NASDAQ:ASML). Notably, the AI chips need advanced manufacturing processes that rely significantly on the company’s EUV lithography systems.
As per Wall Street analysts, the shares of the company have an average price target of $917.67. Baird Asset Management controlled Chautauqua Capital Management, a boutique investment firm, released the Q3 2024 investor letter. Here is what the fund said:
“ASML Holding N.V. (NASDAQ:ASML): After a 35% price appreciation in 1H24 and a beat in 2Q24 numbers, investors are apprehensive about Intel capex cuts, potential memory weakness, and a less clear cyclical recovery pace in 3Q24 and potentially 2025. We remain positive on long-term demand for ASML’s products due to industry supply/demand factors for computing power.”
5) Intuit Inc. (NASDAQ:INTU)
10-Year Revenue Growth Rate: ~14.4%
10-Year Net Income Growth Rate: ~12.5%
Number of Hedge Fund Holdings: 82
Intuit Inc. (NASDAQ:INTU) offers financial management, compliance, and marketing products and services in the US.
Intuit Inc. (NASDAQ:INTU) focuses on small and medium-sized businesses instead of larger businesses. This niche focus places it well to succeed in an industry where AI and automation capabilities are changing the landscape. Intuit Inc. (NASDAQ:INTU)’s flagship products, such as TurboTax, QuickBooks, and Credit Karma, are now household names in financial management solutions. The company’s successful transition to a subscription-based model should continue to aid its long-term growth trajectory.
This shift has provided Intuit Inc. (NASDAQ:INTU) with a more predictable revenue stream and enhanced customer retention. The company remains the frontrunner at integrating AI into its products, mainly through its GenAI initiatives. It sees significant potential in utilizing AI to automate services in tax preparation and SMB accounting.
Wall Street analysts believe that GenAI is a monetizable opportunity, which can enhance customer onboarding experiences, enable higher-priced offerings, and improve customer retention. The roll-out of Intuit Assist, which is powered by GenAI technology, should expand Intuit Inc. (NASDAQ:INTU)’s market opportunity and fuel innovation throughout its product suite. GenAI is expected to make the company’s products more intuitive and easier to use. This should increase customer satisfaction and retention.
Analysts at BMO Capital Markets upped their target price on the shares of Intuit Inc. (NASDAQ:INTU) from $700.00 to $760.00, giving an “Outperform” rating on 23rd August. Baron Funds, an investment management company, released its Q2 2024 investor letter. Here is what the fund said:
“GenAI has captured the market’s imagination, but it’s still very early in the user adoption of this new technology, and the financial payoff from investments into GenAI models and infrastructure is still unknown. We are focused on investing in strong businesses that will be improved by AI, even if this improvement takes time to materialize. Intuit Inc. (NASDAQ:INTU) has been rolling out Intuit Assist, a GenAI powered digital assistant, across its product lines to help Credit Karma users select new credit cards, QuickBooks customers forecast cash flow, Mailchimp customers create targeted email marketing campaigns, and TurboTax customers understand changes in their tax returns from the prior year. We consider these GenAI advancements to be evolutionary rather than revolutionary, but we continue to closely monitor the impact of new technologies on the fintech industry.”
4) UnitedHealth Group Incorporated (NYSE:UNH)
10-Year Revenue Growth Rate: ~11.8%
10-Year Net Income Growth Rate: ~9.9%
Number of Hedge Fund Holdings: 114
UnitedHealth Group Incorporated (NYSE:UNH) operates as a diversified healthcare company in the US.
Wall Street believes that UnitedHealth Group Incorporated (NYSE:UNH)’s growth trajectory is expected to be aided by its scale, diverse business segments, and integrated healthcare services. Moreover, the company’s wide network of healthcare providers and technological capabilities should further strengthen its competitive advantages. The company has a strong position in the healthcare market, primarily in the Medicare Advantage (MA) segment. UnitedHealth Group Incorporated (NYSE:UNH)’s scale and analytics capabilities should drive market share gains in government insurance markets.
Wall Street analysts expect that the company has numerous levers for potential upside in 2025, such as SG&A efficiencies, improvement in Optum health run rate margins, and a conservative bid strategy for Medicare Advantage Medical Loss Ratio (MA MLR). Any expansion of Medicare Advantage or higher government focus on value-based care should further build UnitedHealth Group Incorporated (NYSE:UNH)’s strengths.
UnitedHealth Group Incorporated (NYSE:UNH)’s Optum segment, which is engaged in providing health services and technology solutions, might see higher demand if policies encourage greater integration of care delivery and data analytics.
Analysts at Jefferies Financial Group upgraded the shares of UnitedHealth Group Incorporated (NYSE:UNH) from a “Hold” rating to a “Buy” rating, increasing the target price from $481.00 to $647.00 on 17th July. Wedgewood Partners, an investment management company, released its Q3 2024 investor letter. Here is what the fund said:
“UnitedHealth Group Incorporated (NYSE:UNH) shares rebounded during the quarter and the holding was a top contributor to portfolio performance. The Company reported double-digit growth in earnings per share during the quarter. It has been able to adjust pricing in its Healthcare segment to keep up with medical cost inflation while working with its Optum units to deliver more value-based care, replacing the traditional fee-for-service health-care model. The Optum segment grew operating income over +15% on strong expense management and continued uptake of value-based care offerings. Value-based care is a sensible, long-term growth opportunity for the Company to pursue and also differentiates them from the vast majority of healthcare providers, particularly as it relates to Medicare patients. For example, the Company’s value-based care programs provide more preventative care opportunities and homebased care visits for patients which helps save the U.S. health-care system billions in unnecessary spending, while also providing patients with better outcomes because diseases and behaviors are caught or corrected at earlier stages. Furthermore, the Company has invested in several core assets over the years in order to execute this value-based strategy. It may well become the standard of care as the proportion of people in the U.S. with healthcare insurance coverage continues to reach new highs.”
3) Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
10-Year Revenue Growth Rate: ~14.4%
10-Year Net Income Growth Rate: ~16.5%
Number of Hedge Fund Holdings: 156
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is engaged in manufacturing, packaging, testing, and selling integrated circuits and other semiconductor devices in Taiwan, China, Europe, the Middle East, Africa, Japan, the US, and internationally.
Market experts opine that Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s long-term growth trajectory is expected to be aided by its competitive advantages. These primarily include cost advantage and intangible assets. The company has been solidifying its position as a critical player in the technology landscape. With the surge in demand for advanced chips, thanks to AI applications and high-end smartphones, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) remains at the forefront of a technological revolution.
The company’s technology leadership forms the basis of its competitive advantage. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s focus on advanced nodes, mainly its N2 technology, has been attracting high-profile customers and fueling demand. The company’s strength is evident from the increased interest in its advanced manufacturing processes.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s dominance in the semiconductor foundry market is strengthened by its ability to cater to increasing demand for AI-related chips. Wall Street believes that the company is the primary beneficiary of the ongoing growth in AI, which should continue its upward trend.
Analysts at Needham & Company LLC restated a “Buy” rating on the shares of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), issuing a $210.00 target price on 17th October. Diamond Hill Capital, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said:
“On an individual holdings’ basis, top contributors to return in Q2 included our long positions in Alphabet, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and Microsoft. Semiconductor manufacturer Taiwan Semiconductor’s (TSMC) fundamentals remain solid as demand for its chips continues growing — particularly as the machine learning and cloud computing trends gain more traction.”
2) Alphabet Inc. (NASDAQ:GOOG)
10-Year Revenue Growth Rate: ~18.3%
10-Year Net Income Growth Rate: ~20.9%
Number of Hedge Fund Holdings: 165
Alphabet Inc. (NASDAQ:GOOG) provides numerous products and platforms in the US, Europe, the Middle East, Africa, the Asia-Pacific, Canada, and Latin America.
Wall Street analysts believe that Alphabet Inc. (NASDAQ:GOOG)’s growth momentum is expected to stem from the intangible assets concerning its overall technological expertise in search algorithms and AI, along with access to and accumulation of valuable data for numerous advertisers. Furthermore, its competitive advantages include its network effect, cost advantage, and customer switching costs. The company’s core advertising business remains entrenched in advertising budgets, enabling Alphabet Inc. (NASDAQ:GOOG) to benefit from secular growth in digital advertising spending.
Wall Street analysts believe that the company possesses a significant opportunity in the lucrative public cloud space since Alphabet Inc. (NASDAQ:GOOG) is a key cloud vendor for enterprises looking to digitize their workloads. With autonomous driving gaining a significant amount of traction, the company is the frontrunner of innovation in AVs. On 25th October, Alphabet Inc. (NASDAQ:GOOG)’s self-driving unit Waymo mentioned that it closed a $5.6 billion funding round.
The company released its Q3 2024 results, with consolidated revenues increasing 15%, or 16% in constant currency, YoY to reach $88.3 billion. This growth reflects strong momentum throughout its business. Google Services revenues went up by 13% to $76.5 billion. This growth was due to the strength across Google Search & other, Google subscriptions, platforms, and devices, and YouTube ads. Notably, YouTube’s total ads and subscription revenues exceeded $50 billion over the past 4 quarters for the first time.
JPMorgan upped the price target on the shares of Alphabet Inc. (NASDAQ:GOOG) to $212 from $208, keeping an “Overweight” rating post Q3 2024 earnings. Alphyn Capital Management, an investment management firm, released its Q3 2024 investor letter. Here is what the fund said:
“Alphabet Inc.’s (NASDAQ:GOOG) solid quarterly performance, with revenue growth of 14% and improved margins improving from 29% to 32%, has been overshadowed by ongoing investor concerns regarding future capital expenditures for AI and antitrust risks.
In August, a federal judge ruled that Google illegally monopolized the search and advertising markets in the United States by using exclusive agreements with browser developers, smartphone makers, and wireless carriers. A second trial is scheduled for 2025 to determine enforcement remedies, with a final decision not likely before 2026, given the strong likelihood of Alphabet appealing any decision. Potential remedies may include making search engine data available to competitors and ending agreements to secure its search engine as a default on mobile devices. For example, Alphabet currently pays $20 billion annually for Google to be the default search engine on Apple products. Although regulatory challenges are never positive, Google’s strong brand and consumer preference have limited the impact of previous restrictions. In Europe, Russia, and Turkey, Google search market share declined by only 2%, 7%, and 12%, respectively, when regulators limited its use as the default option.
Another trial focuses on Alphabet’s Ad Tech platform, where the DOJ alleges that the company has monopolized the digital advertising market. Closing arguments are expected in the coming weeks, and a ruling against Alphabet could undermine Google’s dominance in the online advertising ecosystem. Additionally, after the end of the quarter, Alphabet was ordered to open its Android operating system to rivals, allowing them to establish their own app marketplaces and payment systems to compete with Google Play Store. This followed a loss to Epic Games, the developer behind Fortnite, in a December ruling last year. I will continue to monitor these developments and respond accordingly.”
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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