3. Microsoft Corporation (NASDAQ:MSFT)
% of shares shorted: 0.74%
Microsoft Corporation (NASDAQ:MSFT) is one of two public cloud providers capable of delivering a broad range of PaaS/IaaS solutions at scale. The business has become a leader in AI as well, mainly because of its investment in OpenAI. Notably, the American tech company has had remarkable success upselling customers on higher-priced Office 365 subscriptions that come with advanced phone functionality. These elements work together to create a more concentrated business that produces remarkable revenue growth, high and rising margins, and strengthens relationships with clients.
Shares of Microsoft Corp. (NASDAQ:MSFT) recently dropped after the company’s most recent quarterly reports revealed that its Cloud business growth was less than anticipated. The company has revised its revenue estimate for the current quarter to between $63.8B and $64.8B from the $65.07B estimate. Azure revenue for MSFT is anticipated to grow by 28% and 29% annually.
The integration of Copilot AI, according to analysts, is responsible for the firm’s development across several areas in its latest quarter. Office commercial sales grew by 10% YoY $48 billion, while Dynamics software sales have increased by 19% YoY. Bing also experienced a 3% YoY spike in users switching from Google Search because of its AI features.
Alger Spectra Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is a beneficiary of corporate America’s transformative digitization. The company operates through three segments: Productivity and Business Processes (Office, LinkedIn, and Dynamics), Intelligent Cloud (Server Products and Cloud Services, Azure, and Enterprise Services), and More Personal Computing (Windows, Devices, Gaming, and Search). During the quarter, shares contributed to performance after the company reported strong fiscal third quarter results, underscoring its leadership position in the cloud and highlighted its role as a primary facilitator and beneficiary of AI adoption. Company revenue growth, operating margin, and earnings growth surpassed consensus expectations. The utility scale Azure cloud business grew 31% in constant currency of which 7% was AI related versus 3% two quarters ago. Further, management noted most of the AI revenue continues to stem from inference rather than training indicating high quality AI applications by Microsoft’s clients. Management also indicated that the significant cost-cutting programs in corporate America are done, suggesting that the cost optimization headwinds previously impacting Azure’s growth are over. Separately, management provided color on their new AI-productivity tool, Copilot, noting that approximately 60% of Fortune 500 companies are already using Copilot, and that the quarter witnessed a 50% increase in Copilot assistance integration within Teams. We continue to believe that Microsoft has the potential to hold a leading position in AI, given its innovative approach and demonstrated high unit volume growth opportunity.”
The tech giant has hedge fund sentiments of 279 in Q2 2024. Michael Larson’s Bill & Melinda Gates Foundation Trust is the largest shareholder in the company, with 34,889,597 shares worth $15.60 billion.
