3. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders In Q2 2024: 279
AQR Funds’ Latest Investment Stake: $1.729 billion
Microsoft Corporation (NASDAQ:MSFT) is a global leader in personal and cloud computing. It dominates these markets via its Windows operating system, which is the most widely used worldwide, and its Azure cloud business division. After Amazon AWS, Microsoft Corporation (NASDAQ:MSFT) is the second biggest cloud computing company in the world as it commands a 23% market share. This is key for a cloud company, as it enables stable industry partnerships that allow for recurring revenue. Additionally, the scale of Azure, as evidenced by $28.5 billion of Intelligent Cloud revenue means that Microsoft Corporation (NASDAQ:MSFT)’s hypothesis is geared more towards cost control (an internal affair) as opposed to growth (which is dependent on external factors). The firm is also one of the industry leaders in AI through its partnership with OpenAI which has allowed Microsoft Corporation (NASDAQ:MSFT) to provide AI services to its Azure customers. Yet, this also means that moving forward, its ability to generate AI profits is key as the firm has invested billions into the technology.
Microsoft Corporation (NASDAQ:MSFT) chief Satya Nadella is quite optimistic about SaaS, cloud, and AI. Here’s what he shared 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.”
