2. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) has etched its name as an artificial intelligence investment play. Having invested nearly $13 billion into OpenAI, the tech giant is increasingly leveraging AI to strengthen its software offerings. Likewise, its 25% market share in cloud computing, one of the fastest-growing sectors, underscores why it is one of the most promising growth stocks according to hedge funds.
Its latest AI offerings are broadening its impact in Azure, the cloud computing unit. During the fiscal fourth-quarter earnings call, management mentioned that Azure now boasts 60,000 AI clients, which is about 60% more than the previous year’s period, affirming the underlying growth.
In addition to cloud computing, Microsoft Corporation (NASDAQ:MSFT) also boasts of a robust gaming unit spearheaded by the Xbox console. The acquisition of Activision Blizzard has strengthened the company’s prospects in the multibillion-dollar gaming sector, positioning it to generate long-term value.
Microsoft Corporation (NASDAQ:MSFT) regularly achieves solid financial results; its most recent quarter was no exception. Its income from sales and operating earnings both rose by 15% compared to the previous year, showing remarkable performance for a company of its stature. Its earnings per share (EPS) reached $2.95, surpassing analyst estimates. The rise in Microsoft’s earnings per share (EPS) proves its skill in boosting profits while maintaining steady growth across various businesses.
While the stock trades at a premium with a price-to-earnings multiple of 31, it boasts of one of the highest dividend yields of 0.80% among the magnificent 7, making it an ideal growth stock for passive income.
While analysts on Wall Street rate Microsoft as a Buy, it commands an average price target of $504.73, implying 20.93% upside potential. In the second quarter, 279 hedge funds held positions in Microsoft Corporation (NASDAQ:MSFT), and their stakes amounted to $89.07 billion.
Here is what Baron Opportunity Fund said about Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“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 $135 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 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.”
