1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders in Q2 2024: 279
Microsoft Corporation (NASDAQ:MSFT) is one of the biggest software companies in the world. It operates across two fronts, namely personal computing through Windows and Cloud computing via Azure. This provides Microsoft Corporation (NASDAQ:MSFT) with the advantages of catering to a high volume market through Windows and a margin heavy, recurring revenue business with Azure. It also means that since roughly 50% of Microsoft Corporation (NASDAQ:MSFT)’s revenue as of Q4 FY24 comes from Cloud, growth and cost control coupled with profitability for this business are key drivers of the firm’s hypothesis. On this front, Microsoft Corporation (NASDAQ:MSFT) is aggressively investing billions of dollars in artificial intelligence, and it is one of the few companies in the world to have a foundational AI model courtesy of its partnership with OpenAI. As a result, future share price gains are dependent on Microsoft Corporation (NASDAQ:MSFT)’s ability to convince investors that AI investments are leading to cloud computing profits.
Baron Funds mentioned Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter. Here is what the firm said:
“Microsoft Corporation is the world’s largest software and cloud computing company. Microsoft was traditionally known for its Windows and Oice 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 Oice 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.”
MSFT tops our list of the best stocks to buy in each sector. But our conviction lies in the belief that some 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 MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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