2. Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 279
Microsoft Corp (NASDAQ:MSFT)is among the key enterprise software vendors that are poised to benefit in 2025, according to a survey of chief information officers by KeyBanc, which shows that IT budgets are expected to rise in the coming year.
The survey found that IT budgets are anticipated to grow by 3.9% year over year in 2025. Among the large companies surveyed, 71% of respondents expect increases in their IT budgets, while 82% of small businesses surveyed also anticipate growth.
“Following our second half 2024 survey, we are incrementally more optimistic compared to our midyear report six months ago,” said KeyBanc analyst Jackson Ader in a detailed report. “We are seeing positive signs of a potential rebound within front office applications in 2025 with increasing budget priorities.”
“Specific vendor callouts include CRM’s rising priority and MSFT remaining a leading cloud vendor and beneficiary of generative AI, a category where expectations for spending were up this survey,” he added.
Analysts believe most of the revenue beat came from PC segment, while investors were paying more attention to AI and Azure. Azure’s 34% growth met expectations, though guidance for next quarter fell short, projecting between 31% and 32% growth—1 percentage point below forecasts. This dip is attributed to delays in data center capacity from third-party providers, though Azure’s consumption trends remained steady.
Investors hoping for a rebound in IT spending were likely disappointed, as stable Azure consumption suggests no significant uptick in the second half of the year. In addition, the lower-than-expected Q2 guidance underscored tempered growth expectations.
AI services, however, contributed a robust 12 points to Azure’s growth, a steady continuation from the previous quarter. Microsoft’s management confirmed strong demand for AI services, although supply constraints are limiting further expansion. Microsoft Corp (NASDAQ:MSFT) anticipates AI-related revenues, including M365 Copilot and Azure AI, could reach $10 billion annually by next quarter—making it one of the fastest-growing segments in Microsoft Corp (NASDAQ:MSFT)’s history.
Mar Vista Strategic Growth Strategy stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q3 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) stock was pressured in the quarter as investors fretted over rising capex as Microsoft invests heavily in the burgeoning generative AI market. Investors are concerned about the rising capital intensity of the business and the uncertain return on that investment. We continue to believe that Microsoft occupies a strong competitive and strategic position and that it is poised to capture market share as businesses, both large and small, navigate the transition to a digital-first landscape and embrace generative AI-driven productivity tools. The company’s commanding presence in the enterprise arena, combined with its comprehensive product portfolio encompassing Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS), establishes it as a crucial provider of IT solutions for companies of all scales. Microsoft is effectively executing its strategy in a sizable market by offering a roadmap for digital transformation and adoption of cutting-edge, AI-driven solutions, such as ChatGPT and its suite of Copilot applications, which enhance productivity and reduce costs. Consequently, we anticipate that Microsoft’s solutions should exhibit resilience even in a more challenging macroeconomic environment, supporting low double-digit growth in intrinsic value within our investment horizon.”
