1) Microsoft Corporation (NASDAQ:MSFT)
Number of hedge fund holders: 279
Microsoft Corporation (NASDAQ:MSFT) develops and licenses consumer and enterprise software. The company is known for its Windows operating systems and Office productivity suite.
Given its investment in OpenAI, Microsoft Corporation (NASDAQ:MSFT) emerged as a leader in AI. The company continues to upsell users on premium-priced Office 365 versions to include advanced telephony features. The company transitioned to a subscription model for its Microsoft 365 software. Therefore, if anyone wants to use its suite of apps – such as Word, PowerPoint, and Excel – they will be tied in its ecosystem for several years.
Microsoft Corporation (NASDAQ:MSFT)’s cloud business is the largest and fastest-growing segment, and this business is well-placed to drive total growth as AI capacity comes online.
Cost-cutting initiatives in corporate America have also been implemented. This means that cost optimization headwinds, which were impacting Azure’s growth, are now over. Separately, its new AI-productivity tool, Copilot, is being employed by ~60% of Fortune 500 companies. Therefore, it should be able to hold a leading position in AI.
Microsoft Corporation (NASDAQ:MSFT) has announced results for 4Q 2024, with revenue reaching $64.7 billion, up by 15% (and up 16% in constant currency) and operating income coming at $27.9 billion (up 16% in constant currency). The company’s quarterly results were aided by revenue increases across Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.
Analysts at Truist Financial reaffirmed a “Buy” rating on the shares of Microsoft Corporation (NASDAQ:MSFT), giving the company a price target of $600.00 on 17th June. According to our database, 279 hedge funds held stakes in the company in the second quarter, with positions worth $89.06 billion.
Fred Alger Management, an investment management company, released its second quarter 2024 investor letter. Here is what the fund said:
“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.”
While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than the ones mentioned on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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