2. Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Holders as of Q2: 279
Amid the artificial intelligence race, Microsoft Corp (NASDAQ:MSFT) is arguably one of the stocks that will make you rich in 5-10 years, given the investments it’s made around the emerging technology. The company is also leveraging the technology to strengthen its cloud computing solution under Azure.
Azure is the source of the largest AI opportunity from all this. With a current % market share of 25%, Microsoft Corp (NASDAQ:MSFT) is the second-largest provider of cloud computing services after Amazon, and its new AI tools are helping it grow even further.
During the Q4 earnings call, the management reported that Azure now has 60,000 AI customers, which is approximately 60% more than it had during the same quarter last year. Given that Goldman Sachs projects that the cloud computing industry will generate $2 trillion in sales by 2030, Microsoft should be one of the beneficiaries, allowing it to generate more shareholder value.
AI is already driving some of that growth, and Microsoft stands to gain as more businesses turn to its AI cloud services to improve their own AI offerings.
Additionally, it has turned to technology to strengthen and enhance user experience on its office solutions, including Microsoft Office. Its investment of close to $13 billion in ChatGPT parent OpenAI has also had a hand in strengthening its search tool Bing sits to take on Google.
Microsoft Corp (NASDAQ:MSFT) regularly reports strong financial results; the most recent quarter was no exception. Its operating income and revenue grew by 15% annually, which is remarkable for a business of this size. Earnings per share (EPS) exceeded analysts’ estimates, landing at $2.95.
Microsoft Corp (NASDAQ:MSFT)’s ability to boost profitability while growing steadily is demonstrated by the growth of its earnings per share, affirming its ability to make shareholders rich. Over the previous five years, its outstanding share count has only dropped by about 3%, so a large portion of the growth can be linked to its improved earnings.
Amid the earnings growth, Microsoft continues to reward investors with a 0.80% dividend yield even as it trades at a premium with a price-to-earnings multiple of 31. In the second quarter, 279 hedge funds held positions in Microsoft (NASDAQ:MSFT), and their stakes amounted to $89.07 billion.
Baron Opportunity Fund stated the following regarding 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.”
