2. Microsoft Corp. (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corp. (NASDAQ:MSFT) is a technology company that has been expanding its AI capabilities. This is fueled by the launch of advanced AI models in its Azure AI catalog. Azure integrates on-premises and cloud-based systems for enterprise clients.
In FQ1 2025, the company reported a 16% year-over-year revenue growth, reaching $65.6 billion. Notably, cloud revenue soared by 22%, exceeding $38.9 billion. This was driven by a 23% increase in Azure-led server products and cloud services. Azure Arc’s customer base has increased by 80% year-over-year. Azure Arc is a hybrid cloud management platform that extends Azure’s capabilities to non-Azure environments. This allows businesses to manage resources across various platforms seamlessly.
The company is updating its Azure partner program, making it more difficult to qualify for certain specializations, particularly in the AI space. The Azure Partner Program is a network of companies that collaborate with Microsoft to deliver and support Azure cloud solutions to customers. Starting in early 2025, partners specializing in AI on Azure must now demonstrate at least $5,000 in revenue from Azure AI services.
Creative Strategies’ Ben Bajarin believes that Microsoft Corp.’s (NASDAQ:MSFT) enterprise AI traction, particularly with Copilot, will take time to materialize. Microsoft Copilot is an AI-powered assistant integrated into Microsoft 365. It uses Azure’s cloud computing power for its functionality. Although many companies are planning to use the Copilot AI tool, it’s uncertain how much money Microsoft Corp. (NASDAQ:MSFT) will make from it.
RiverPark Large Growth Fund noted the company’s near-term Azure growth headwinds due to infrastructure limitations but remains confident in its long-term growth prospects. It stated the following regarding Microsoft Corp. (NASDAQ:MSFT) in its Q3 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT): MSFT was a top detractor in the third quarter following a fiscal fourth quarter earnings report that featured inline operating metrics but mixed guidance. Positively, the company reported strong revenue (+15%) and earnings growth (+10%), powered by Azure (+30%), and operating margins of 43%. Guidance however calls for lower than expected fiscal first quarter Azure revenue as infrastructure constraints limit growth, and higher capital expenditures throughout the company’s fiscal 2025 to alleviate these constraints. The company expects growth to reaccelerate in the back half of fiscal 2025 as more AI capacity comes online.
Cloud-based services have become the company’s largest revenue and earnings producer. The company’s Azure platform alone has the potential to grow to more than $200 billion in annual revenue over the next decade. Overall, we believe that the company will continue to deliver double-digit revenue and EPS growth and generate an enormous amount of free cash flow to return to shareholders and use for acquisitions.”
