In this article, we will talk about the 10 stocks to buy before they split next.
S&P 500: Targeting 6,000 Amid Market Optimism
There’s been a notable sense of fear among investors despite the market’s current strong performance. The upcoming weeks are expected to be particularly interesting due to the convergence of earnings reports and an impending election, alongside uncertainty regarding the Fed’s next moves. But the fact remains that the market has shown resilience, with numerous new highs for major indices this year, although investors remain skeptical. Historically, volatility tends to increase after elections as political changes take effect. Currently, volatility is relatively low but is anticipated to rise as January approaches and clarity about potential policy impacts emerges.
Despite prevailing uncertainties, there remains cautious optimism about the market’s ability to maintain its upward trajectory. In mid-October, J.J. Kinahan, IG North America CEO, joined CNBC to the skepticism displayed by investors. We covered his sentiment in our article about the 8 Best US Stocks For Foreign Investors Right Now:
“Kinahan pointed out that many investors are hesitant, particularly those in their mid-30s and younger, who have not experienced a significant downturn in the market. He explained that this demographic often perceives any market decline as temporary, lasting only a few days. He emphasized the importance of taking risks when young and noted that many younger investors are excited about their opportunities in the current market environment. This positive sentiment is particularly significant given their parents’ experiences during the financial crisis of 2008-2009.
He also speculated that part of the reason for the market’s strong performance might be attributed to older investors who have been burned in previous downturns and are now waiting for a pullback that has yet to materialize. Kinahan suggested that as these investors gradually capitulate, they may start to invest more actively in the market.”
READ ALSO 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In
Around the same time, Mary Ann Bartels, Sanctuary Wealth chief investment strategist, joined ‘Squawk Box’ on CNBC to discuss the market trends as well. On October 14, Mary Ann Bartels highlighted that the S&P 500 could reach 6,000 by year-end. However, she acknowledged that while this target is achievable, the journey may not be smooth.
Bartels noted that there could be volatility ahead, as evidenced by increased hedging activity in the market. However, she remains optimistic due to the Fed’s shift towards an easier monetary policy and the ongoing economic growth, which is supported by full employment, albeit with a slight slowdown in job creation. Importantly, she highlighted that corporate profits are on the rise, with earnings currently beating expectations by about 5%. This positive trend across fundamental and technical indicators leads her to believe that the market can continue its rally into November and December.
As the S&P 500 recently closed above 5,800 for the first time at 5,815, Bartels discussed how this milestone brings the 6,000 target closer. She echoed sentiments from Tom Lee, who suggested that market behavior could improve significantly if there is clarity regarding the outcome of the presidential election. Bartels agreed that once a winner is declared, it could trigger a relief rally as both domestic and foreign investors gain confidence in the stability of US leadership.
Turning to the Fed’s actions, Bartels addressed concerns about recent CPI and PPI data coming in hotter than expected. She described potential short-term volatility as a bucking bull, indicating that while fluctuations might occur, the overall trend remains upward. Her year-ahead thesis suggests both fixed-income and equity markets are poised for positive returns, albeit with some bumps along the way.
Bartels also advocated for buying opportunities in the current market environment. She specifically pointed to technology stocks and the NASDAQ, which has yet to hit a new record high. She believes technology will continue to lead the market, particularly emphasizing semiconductors as key drivers of growth. For investors looking to enter the tech sector, she sees this as an opportune moment.
Her perspective underscores a belief in the resilience of corporate profits and economic fundamentals amid changing monetary policies and external uncertainties. At the same time, it should be noted that the optimistic outlook for the S&P 500 targeting 6,000 is significant for stock splits as it reflects positive market sentiment, encouraging companies to make their shares more accessible to retail investors. When share prices rise, splits can attract more buyers by lowering the price per share. However, it’s important to note that a stock split does not change anything about a business’s fundamentals. A poor company will stay a poor company post-split and a good company will stay a good company. That being said, we’re here with a list of the 10 stocks to buy before they split next.
Methodology
We sifted through financial media reports to compile a list of stocks that are likely to split. We then selected the 20 stocks that have experienced the highest gains in their share prices over the past 5 years and have a history of spitting their stock. From that, we picked the top 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Stocks To Buy Before They Split Next
10. W.W. Grainger Inc. (NYSE:GWW)
Share Price as of October 18: $1,114.00
Surge in Share Price in 5 Years: 259.26%
Stock Split Confirmed: no
Number of Hedge Fund Holders: 32
W.W. Grainger Inc. (NYSE:GWW) is a leading broad-line distributor of industrial supplies and maintenance products, including MRO supplies, tools, safety equipment, and facility maintenance items. With a vast network of branches and online platforms, it caters to the diverse needs of businesses across various industries.
The company reported a 3.11% year-over-year increase in sales in Q2 2024, driven by strong performance in the High-Touch Solutions and Endless Assortment segments. This brought a revenue of $4.31 billion with $9.76 in earnings per share.
It’s constructing a new distribution center in Hockley, Texas as of October this year. The 1.2 million-square-foot facility will be one of the company’s largest and will employ ~400 people. It donated $20,000 to Roberts Road Elementary School as part of the groundbreaking ceremony. The distribution center is expected to open in 2026.
It demonstrates exceptional financial health with strong ROIC, showcasing its ability to efficiently allocate capital and generate substantial returns for shareholders. The company’s commitment to shareholder value is evident through its $345 million return to shareholders in the quarter through dividends and share repurchases.
ClearBridge Multi Cap Growth Strategy stated the following regarding W.W. Grainger, Inc. (NYSE:GWW) in its first quarter 2024 investor letter:
“W.W. Grainger, Inc. (NYSE:GWW), in the industrials sector, was our largest new buy. Grainger is the biggest industrial maintenance, repair, and operations distributor in North America. The company is a share gainer in a large and fragmented market, with less than 10% share of the addressable market for their direct, “high touch solutions” business estimated at more than $165 billion. Grainger has also barely scratched the surface with its online “endless assortment” platform, Zoro.com, which targets an even larger market. In addition to its growth and profit potential, we are attracted to Grainger’s strong balance sheet and improved capital allocation under its current management.”
9. Fair Isaac Corp. (NYSE:FICO)
Share Price as of October 18: $2,047.92
Surge in Share Price in 5 Years: 578.43%
Stock Split Confirmed: no
Number of Hedge Fund Holders: 42
Fair Isaac Corp. (NYSE:FICO) is a data analytics company focused on credit scoring services. It’s known for the FICO score, a credit score widely used by lenders to assess creditworthiness. It also provides other analytics solutions for financial services, healthcare, retail, and telecommunications.
The company has high-margin scores in business (85-90%), but its performance is tied to credit markets. 5 years ago, it added a software segment to generate organic growth and maintain stability. Its mathematical scoring model, combined with credit bureau data, produces the final FICO score. B2B clients purchase the FICO score and pass any price increases to consumers through credit bureaus. The cost of a FICO score is negligible compared to loan costs, meaning price increases would likely go unnoticed by consumers.
The company’s revenue was up 12.33% year-over-year in FQ3 2024. The Americas region contributed 85% to the total revenue. The scores segment saw the highest increase of 20%, driven by B2B growth, offset by B2C decline. Its software business is thriving, driven by strong SaaS bookings and a successful FICO World event. The scores business continues to excel, offering valuable solutions and focusing on financial education, inclusion, and reaching underserved communities.
Exceptional financial strength in FQ3 2024 led Fair Isaac Corp. (NYSE:FICO) to repurchase 196,000 shares and authorize $1 billion for share repurchases. This strategic action boosted the stock price by 115.11% in one year. Given its history of 4 stock splits, a future stock split may not be far-fetched.
Headwaters Capital Management stated the following regarding Fair Isaac Corporation (NYSE:FICO) in its Q3 2024 investor letter:
“Top Contributors: Fair Isaac Corporation (NYSE:FICO) +31%: FICO was the largest contributor to performance during Q3 given the size of the position in the portfolio. FICO’s stock performed well during the quarter as declining mortgage rates stimulated both refinance and purchase mortgage volumes.”
8. Autozone Inc. (NYSE:AZO)
Share Price as of October 18: $3,141.19
Surge in Share Price in 5 Years: 182.99%
Stock Split Confirmed: no
Number of Hedge Fund Holders: 45
Autozone Inc. (NYSE:AZO) is a leading retailer and distributor of automotive replacement parts and accessories. It operates a network of stores, serving both professional mechanics and do-it-yourself customers. Products include engine parts, brakes, batteries, and other automotive components.
In FQ4 2024, the company made $6.21 billion in revenue, up 9.05% year-over-year. Total company same-store sales grew by 1.3%, with domestic same-store sales up 0.2% and international same-store sales up 9.9%. Domestic commercial sales accelerated sequentially, finishing up 4.5% compared to the previous year’s FQ4 of 3.9%.
At the same time, sales for home improvement (DIY) products were sequentially flat, with a slight decrease of 1%. Sales in optional categories like tools and appliances dropped by 5% due to economic problems. Prices for DIY items rose a little, but are expected to go back to normal industry growth rates. The number of DIY transactions decreased by 2%, but the company gained more market share.
Autozone Inc. (NYSE:AZO) has demonstrated a strong commitment to customer service, which it now refers to as “WOW! Customer Service.” This focus, combined with improvements in inventory availability, hub and mega hub coverage, the Duralast brand’s focus on quality, and technology advancements, is driving significant growth in commercial sales, making it a promising investment opportunity.
RGA Investment Advisors made the following comment about AutoZone, Inc. (NYSE:AZO) in its Q4 2022 investor letter:
“Below is a chart of Alphabet’s (NASDAQ:GOOG) P/E ratio plotted against AutoZone, Inc. (NYSE:AZO). Any number of examples between large cap tech companies and more mature companies could illustrate this very same point, but we find this specific case most interesting because of its history.
Note that in late 2014/early 2015 these multiples crossed one another. The relative harmony between Alphabet and Autozone lasted for just shy of a year at that time, before Alphabet’s shares surged and Autozone’s shares slumped. This relationship need not matter for markets, though we think there is some signal for investors. Autozone today trades at the highest multiples of its recent history, while Alphabet trades at its lowest. Meanwhile, despite growth estimates dropping considerably at Alphabet and appreciating modestly at Autozone, Alphabet will outgrow Autozone by a wide margin over the next five years…” (Click here to read the full text)
7. O’Reilly Automotive Inc. (NASDAQ:ORLY)
Share Price as of October 18: $1,201.38
Surge in Share Price in 5 Years: 197.96%
Stock Split Confirmed: no
Number of Hedge Fund Holders: 52
O’Reilly Automotive Inc. (NASDAQ:ORLY) is an auto parts retailer that provides automotive aftermarket parts, tools, supplies, equipment, and accessories for both professional and do-it-yourself customers. It’s known for its focus on customer service, competitive pricing, and a strong commitment to community involvement.
Q2 2024 started a bit slow due to unfavorable weather conditions, but the company experienced a resurgence later, fueled by demand for seasonal products. June marked the peak of this resurgence, with consistent sales momentum continuing into July. Total revenue generated was $4.27 billion, up 4.99% year-over-year. Earnings per share reached $10.55. Although overall sales were below expectations, positive customer sentiment led to a 2.3% increase in comparable store sales.
Its share price is up 18% recently, near its yearly high. The financial outlook is promising, with projected earnings and revenue growth rates of 6.9% and 5.8% respectively for 2024.
The company’s strong performance is fueled by increased customer transactions and exceptional service. Strategic expansion, including 27 new store openings in Q2, positions it for continued growth. While the company has lowered its full-year sales guidance due to economic concerns, its long-term outlook remains positive, driven by the enduring demand for automotive aftermarket products. O’Reilly Automotive Inc.’s (NASDAQ:ORLY) commitment to customer satisfaction and market share expansion is expected to drive future growth.
ClearBridge Large Cap Value Strategy stated the following regarding O’Reilly Automotive, Inc. (NASDAQ:ORLY) in its Q3 2024 investor letter:
“Skepticism over the consumer has left some high-quality stocks with depressed valuations and allowed us to reduce our consumer discretionary underweight with the addition of O’Reilly Automotive, Inc. (NASDAQ:ORLY) and Starbucks. While we have been cautious on retailers for quite some time, auto parts retailer O’Reilly is a best-in-class, high-quality operator with high returns on invested capital and a solid history of consistent execution and sustainable share gain, and it enjoys rational competitive dynamics in the broader industry. In addition, auto parts retailing carries some counter-cyclicality as consumers tend to hold on to their cars longer, requiring more repair and maintenance, during softer economic environments. We think a high-quality franchise like O’Reilly trading at a reasonable valuation in an otherwise expensive market is worth our attention and we initiated a starter position.”
6. Costco Wholesale Corporation (NASDAQ:COST)
Share Price as of October 18: $884.00
Surge in Share Price in 5 Years: 191.88%
Stock Split Confirmed: no
Number of Hedge Fund Holders: 71
Costco Wholesale Corporation (NASDAQ:COST) is a membership-only big-box retailer that offers a wide variety of products at bulk prices. Membership models allow it to offer lower prices to its members, making it a popular destination for shoppers seeking value and convenience. The product offerings include groceries, electronics, clothing, household goods, and more.
Sales reached $79.7 billion in FQ4 2024, up 0.96% year-over-year. For FY2024, revenue totaled $249.6 billion, representing a 5% increase. The company’s expansion plans remain on track, with 12 more stores scheduled to open by the end of this year.
International sales grew by 5.7%, and e-commerce sales surged by 18.9%. Membership growth also remained steady, with a 7.3% increase in paid household members and a 7% increase in cardholders. Ancillary businesses and digital initiatives significantly grew. Pharmacy sales surged due to increased prescription fills, and optical sales expanded as more members took advantage of eyewear deals. Gas sales, however, declined slightly.
Peloton, the popular fitness equipment company, has recently announced a strategic partnership with Costco Wholesale Corporation (NASDAQ:COST) to sell its Bike+ stationary bikes. Starting November 1 and continuing through February 15, the company will feature the Peloton Bike+ in 300 of its US stores at a discounted price of $1,999 (compared to the regular price of $2,495 on Peloton’s website). Online shoppers can also purchase the Bike+ on Costco’s website for $2,199.
The company has already established partnerships with other major retailers like Amazon and Dick’s Sporting Goods, further demonstrating its commitment to expanding its distribution channels. Resultantly, it presents a compelling investment opportunity.
Parnassus Core Equity Fund stated the following regarding Costco Wholesale Corporation (NASDAQ:COST) in its Q2 2024 investor letter:
“Costco Wholesale Corporation (NASDAQ:COST) posted strong results for the third quarter of fiscal 2024, with a robust increase in net sales and strength in both U.S. and international markets. Bucking the trend of weakening demand for discretionary items that has pressured many other retailers, Costco reported growth in nonfood sales.”
5. ASML Holding (NASDAQ:ASML)
Share Price as of October 18: $634.20
Surge in Share Price in 5 Years: 178.16%
Stock Split Confirmed: no
Number of Hedge Fund Holders: 81
ASML Holding (NASDAQ:ASML) is one of the world’s leading manufacturers of chip-making equipment, designing and manufacturing lithography systems used in the semiconductor manufacturing process. These machines are essential for printing the tiny patterns on silicon wafers that form the basis of integrated circuits.
As the exclusive provider of EUV and high NA EUV lithography machines, essential for producing cutting-edge 5nm, 3nm, and 2nm chips, the company enjoys a dominant market position. This technological monopoly provides a significant competitive advantage. Its innovative lithography systems are crucial for the production of advanced microchips, powering the growth of AI and other cutting-edge technologies. While 2024 is a transitional year with no anticipated revenue growth, the company is poised for long-term success given its competitive advantage in EUV lithography systems.
It has a strong track record of 18.42% average annual revenue growth over the past decade, reflected by its 15.66% year-over-year revenue growth in Q3 2024. Net system sales were driven by logic at 64%, with the remaining 36% coming from memory. Net system bookings in the quarter were balanced between memory at 54% and logic at 46%.
The new EUV products continue to make significant progress. The NXE:3800E system is being ramped up this quarter, with EUV customers rapidly adopting it due to its superior performance, including a 37% increase in throughput compared to its predecessor. The company achieved a record overlay of 220 wafers per hour in the factory and is on track to deliver fully specified systems starting next year. As customers transition to the NXE:3800E, the majority of Q4 shipments will be of this model, indicated ASML management. ASML Holding’s (NASDAQ:ASML) strategic focus and technological leadership position it for long-term success.
Baird Chautauqua International and Global Growth Fund stated the following regarding ASML Holding N.V. (NASDAQ:ASML) in its Q3 2024 investor letter:
“ASML Holding N.V. (NASDAQ:ASML): After a 35% price appreciation in 1H24 and a beat in 2Q24 numbers, investors are apprehensive about Intel capex cuts, potential memory weakness, and a less clear cyclical recovery pace in 3Q24 and potentially 2025. We remain positive on long-term demand for ASML’s products due to industry supply/demand factors for computing power.”
4. Intuit Inc. (NASDAQ:INTU)
Share Price as of October 18: $607.90
Surge in Share Price in 5 Years: 131.61%
Stock Split Confirmed: no
Number of Hedge Fund Holders: 82
Intuit Inc. (NASDAQ:INTU) is a leading global financial technology platform offering solutions for individuals and small businesses. Its products include TurboTax for tax preparation, Credit Karma for financial management, QuickBooks for business accounting, and Mailchimp for email marketing. With over 100 million customers worldwide, it empowers individuals and businesses to achieve their financial goals.
The company has transitioned to a cloud-first company, leveraging customer data to enhance user experiences across its product lines and streamline marketing efforts. This strategic shift has strengthened its economic moat by increasing switching costs and fostering a network effect. The company uses AI to empower individuals and businesses. Intuit Assist, a GenAI-powered digital assistant, is being integrated across product lines to provide personalized guidance for tasks like credit card selection, cash flow projection, email marketing campaign creation, and tax return understanding.
In the fourth quarter of fiscal 2024, revenue totaled $3.18 billion, up 17.40% year-over-year. For the full year, it was up 13%. Online Ecosystem revenue was up the most by 20%. Other segments, such as the Consumer Group revenue, Credit Karma revenue, and Small Business and Self-Employed Group revenue also saw significant growth in FY2024.
Its AI-driven platform and comprehensive product offerings position it for continued growth. With a positive outlook from analysts and a strong financial performance, Intuit Inc. (NASDAQ:INTU) is well-positioned to capitalize on the growing demand for AI-powered financial solutions.
Baron Funds stated the following regarding Intuit Inc. (NASDAQ:INTU) in its “Baron FinTech Fund” second quarter 2024 investor letter:
“Intuit Inc. (NASDAQ:INTU) has been rolling out Intuit Assist, a GenAI powered digital assistant, across its product lines to help Credit Karma users select new credit cards, QuickBooks customers forecast cash flow, Mailchimp customers create targeted email marketing campaigns, and TurboTax customers understand changes in their tax returns from the prior year. Klarna, the privately held consumer lending and payments company, is cutting costs by using GenAI assistants to handle two-thirds of customer service chats and reduce its dependency on external marketing agencies. We consider these GenAI advancements to be evolutionary rather than revolutionary, but we continue to closely monitor the impact of new technologies on the fintech industry.”
3. Eli Lilly And Co. (NYSE:LLY)
Share Price as of October 18: $918.33
Surge in Share Price in 5 Years: 745.30%
Stock Split Confirmed: no
Number of Hedge Fund Holders: 100
Eli Lilly And Co. (NYSE:LLY) is a global pharmaceutical company that develops, manufactures, and markets prescription drugs for various therapeutic areas. It’s known for its innovative research and development efforts, which have led to the creation of important medications for conditions such as diabetes, cancer, and autoimmune diseases. Some of its products include insulin, antidepressants, and treatments for cancer, diabetes, and autoimmune diseases, sold in over 125 countries.
In Q2 2024, revenue soared 35.98% to $11.30 billion, driven by new products generating nearly $3.5 billion. The company is adding 11 new obesity treatments and investing $5.3 billion in Indiana manufacturing.
The company’s strong growth is driven by its weight loss drugs, Mounjaro and Zepbound, which together could generate up to $25 billion in peak sales. While Zepbound contributed $1.2 billion in Q2 revenue, the company is also developing promising next-generation candidates. It’s investing in future growth with orforglipron and retatrutide, projected to generate over $1 billion annually by 2030. The company is also seeking regulatory approval for a once-weekly insulin medication.
The company achieved significant milestones, including Alzheimer’s disease approval for Kisunla, Japan approval for Jaypirca, and positive Phase 3 results for tirzepatide in heart failure and obesity. In July, the company acquired Morphic, a developer of oral therapies for chronic diseases. Additionally, management announced the availability of new Zepbound doses.
Eli Lilly And Co.’s (NYSE:LLY) strong financial performance, innovative drug pipeline, and strategic investments solidify its position as a leading healthcare company. Revenue guidance for 2024 has been increased by $3 billion. Despite increasing competition due to expiring patents, its positioned for continued growth.
PGIM Jennison Health Sciences Fund stated the following regarding Eli Lilly and Company (NYSE:LLY) in its Q2 2024 investor letter:
“Eli Lilly and Company (NYSE:LLY) is a diversified biopharmaceutical company with core franchises in Diabetes, Obesity, Immunology, Neurodegeneration, and Oncology. The company is one of the two global leaders in diabetes with blockbuster products in Trulicity and recently launched Mounjaro (tirzepatide) to serve this large underserved market. To date, the Mounjaro launch is the strongest for any diabetes drug ever launched, which we attribute to off label usage in the obesity indication as well as on label use in diabetes. We believe the tirzepatide (the generic name for Mounjaro) franchise is also uniquely positioned to grow substantially from here thanks to its recent approval for obesity. To that note, in late 2023, Eli Lilly received approval for tirzepatide in obesity and is commercializing it for obesity under a new brand name, Zepbound. While still early in the launch, uptake has been extremely strong, exceeding that of both Wegovy and Mounjaro at the same timepoint in their launches. While Alzheimer’s Disease has been a tough market for drug developers, Eli Lilly has breakthrough designation from the food and drug administration (FDA) for donanemab and recently presented Phase III pivotal trial data that positions donanemab as the most efficacious drug in the class. In June, the FDA advisory committee voted unanimously in favor of donanemab as an effective treatment where the benefits outweigh the risks, praising the therapy as innovative. Donanemab was then approved under the brand name Kisunla in early July. Eli Lilly also has exciting franchises in dermatology, immunology, and oncology that are starting to add meaningfully to growth. With a proven history of strong commercial execution and one of the highest research and development (R&D) success rates in the industry, we see opportunity for continued success. With a lack of meaningful patent expirations for the rest of the decade. Eli Lilly is uniquely positioned amongst its larger-cap peers. Recent positive performance has been driven by the continued strong growth of Mounjaro and Zepbound, which led to a big guidance raise on the 1Q call, an unusual action for Eli Lilly this early in the year, which speaks to their confidence in the strong trends they are seeing.”
2. Netflix Inc. (NASDAQ:NFLX)
Share Price as of October 18: $689.66
Surge in Share Price in 5 Years: 150.51%
Stock Split Confirmed: no
Number of Hedge Fund Holders: 103
Netflix Inc. (NASDAQ:NFLX) is a global streaming service provider that offers TV shows, movies, documentaries, and original content. Founded in 1997 as a DVD rental service, it transitioned to a streaming platform in 2007. It has revolutionized the way people consume entertainment and is considered a pioneer in the streaming industry.
The company has introduced a cheaper, ad-supported tier powered by AI in late 2022 to enhance user experience and deliver more effective ads. As a pioneer in online streaming, it’s a top-performing stock. Its massive and growing subscriber base drives significant revenue growth. In 2023, it achieved record UK revenues, primarily due to increased subscriber numbers following its crackdown on password sharing.
Revenue was up by 15.02% year-over-year in Q3 2024. Despite challenges in membership growth and ad monetization, it added over 5 million new subscribers and improved its operating margin to 29.6%. International markets drove subscriber growth, and the ad-supported tier saw a 35% quarter-on-quarter increase in memberships. The company’s strategic shift towards advertising has solidified its position as a strong investment.
Management announced that the company’s first-party ad server is launching in Canada this quarter and will expand to other markets in 2025. Partnerships with Trade Desk and Google Live are progressing well. There are plans for more ad formats, features, and measurement tools.
Netflix Inc. (NASDAQ:NFLX) projects a 14.7% increase in revenue year-over-year for Q4, with a target operating margin of 21.6%. Looking ahead to 2025, it anticipates annual revenue between $43 billion and $44 billion, driven by continued subscriber growth and higher average revenue per subscriber. The international expansion and ability to adapt to changing consumer preferences position it for continued growth.
Polen Focus Growth Strategy stated the following regarding Netflix, Inc. (NASDAQ:NFLX) in its Q2 2024 investor letter:
“Finally, we trimmed Netflix, Inc. (NASDAQ:NFLX) mostly due to valuation but also as a source of funds to add to the new position in Shopify. As a reminder, we added to our position in August 2022 amid broad concerns about the company’s ability to grow and monetize shared passwords. We expected Netflix to show progress in monetizing shared passwords, leading to robust free cash flow generation. This is now playing out and is appreciated by the market. Hence, given the balance of growth and valuation, we felt it was appropriate to reduce our exposure to a more normal weight.”
1. Microsoft Corp. (NASDAQ:MSFT)
Share Price as of October 18: $416.12
Surge in Share Price in 5 Years: 202.83%
Stock Split Confirmed: no
Number of Hedge Fund Holders: 279
Microsoft Corp. (NASDAQ:MSFT) is a technology company that develops, manufactures, and licenses software, hardware, and services. Founded in 1975, it became one of the most influential companies in the personal computer revolution with its Windows operating system. Today it offers a range of products and services, including the Windows operating system, Office productivity suite, Azure cloud computing platform, Xbox gaming consoles, and Surface devices.
Its stock has rallied after a recent decline, supported by a key technical level. Despite a general market downturn and concerns about Azure cloud computing revenue, the company’s focus on AI and its strong fundamentals position it for potential growth.
FQ4 2024 revenue increased 15.20% year-over-year, driven by strong growth in Microsoft Cloud, up 21% from a year-ago period. Individual Office sales grew 4%, while Dynamics ERP and CRM software sales increased 19%. Bing usage rose 3%. Azure revenue surged 30%, fueled by partnerships with Lumen Technologies and Palantir.
The company’s Copilot, an AI-powered productivity assistant, has seen significant growth, with Office 365 Copilot customer numbers increasing by over 60% sequentially in FQ4. With an Office 365 user base exceeding 400 million, Copilot’s future in productivity tools looks promising. Placing Platform Limited (PPL) has partnered with Microsoft to enhance its specialty insurance trading platform. This collaboration will leverage Microsoft’s data and AI capabilities to create a more efficient and data-driven platform.
In October, Lenfest Institute, OpenAI, and Microsoft Corp. (NASDAQ:MSFT) have launched a $10 million AI Collaborative and Fellowship program to support US metro news organizations in exploring and implementing AI technologies.
The company’s healthcare AI innovations offer a promising but risky investment opportunity. While the potential for high growth exists, the competitive and regulated market presents challenges. Continued investment in AI and cloud infrastructure positions the company as a market leader.
Generation Investment Management Global Equity Strategy stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Generative AI’s hunger for power has increased disproportionately with its intelligence. According to one estimate, OpenAI’s GPT-4 required 50 gigawatt hours (GWh) of electricity to train, much more than the 1.3 GWh needed for GPT-3.3 And then AI requires even more power when it is put to use (so called ‘inference’). Some of the latest trends worry us. Microsoft Corporation (NASDAQ:MSFT) appears to be slipping in its ESG goals, with its greenhouse gas emissions rising again last year, as it invests in becoming a big player in AI. It is struggling in particular to curb its Scope 3 emissions in the capital goods category – nowhere more so than in the activity associated with the construction of data centres: both the embedded carbon in construction materials like steel and cement, as well as the emissions from the manufacturing of hardware components such as semiconductors, servers and racks. Google’s emissions have risen by close to 50% in the past five years.
We feel it is worth dwelling on Microsoft for a few moments, since we suspect you will be hearing a lot more about the relationship between AI and sustainability in the coming months. The bottom line is that we continue to see Microsoft as a sustainability leader. In the case of Scope 2 emissions, the company covers 100% of its electricity use with purchases of renewable energy. Crucially, though, the majority of this green energy is directly sourced via power purchase agreements, which bring new renewable capacity to the grid. Microsoft is also committed to operating 24/7 on renewable power by 2030, a policy that will help bring energy storage onto the grid as well…” (Click here to read the full text)
While we acknowledge the growth potential of Microsoft Corp. (NASDAQ:MSFT), our conviction lies in the belief that AI stocks hold great promise for delivering high 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.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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