2. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) is a long-standing technology company with solid fundamentals. Over the past few months, the company has accelerated its position on the innovation front through strong partnerships and new product releases, reflecting its position in the tech sector. Recently, the company partnered with Accenture and Avanade to help businesses transform their functions using artificial intelligence and Microsoft Copilot. In addition to that, the company also launched new and improved adapted AI models for various industries. The new models will help organizations address their particular AI needs with greater efficacy and will readily be available through the Azure AI model catalog.
These partnerships and advancements helped Microsoft Corporation (NASDAQ:MSFT) report solid financial results, giving it a strong head start to the fiscal year 2025. In the fiscal first quarter of 2025, the company logged $65.5 billion in revenue, up by 16% year-over-year, and $24.7 billion in net income, up by 11% from the same quarter last year. Microsoft Corporation (NASDAQ:MSFT) attributes its performance to its AI-backed transformation, resulting in improved workflow, operational efficiencies, and happy customers.
Microsoft Corporation (NASDAQ:MSFT) has a sustainable business model, especially due to its subscription-based productivity suite which has been growing. Revenue for its productivity and business processes segment grew by 12% to reach $28.3 billion in the fiscal first quarter of 2025. Its star product, Microsoft 365 (commercial products and cloud services), saw a 12% increase in revenue during the same period. Overall, analysts are also bullish on the stock and their median price target implies an upside of 14% from current levels.
Baron Opportunity Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q3 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 $147 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. Shares gave back some gains from strong performance over the first half of this year. For the fourth quarter of fiscal year 2024, Microsoft reported a strong quarter with total revenue growing 16%, in line with the Street; Microsoft Cloud up 22%; Azure up 30%; 43% operating income margins; and 36% free cash flow margins. Core Azure growth came in one point shy of expectations, however, due to a soft European market and continued constraints on AI compute capacity. In the same vein, while Microsoft reiterated its fiscal 2025 targets of double-digit top-line and operating income growth, quarterly guidance called for Azure growth to slow a bit before accelerating in the back half of the fiscal year, as capital expenditures increase, yielding an expansion of AI compute capacity. We believe this investment is a leading indicator for growth, with more than half of the spend related to durable land and data center build outs, which should monetize over the next 15-plus years. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes, and we remain investors.”
