We recently published a list of the 12 Best AI Stocks Leading the ‘Big Tech Race’ to $4 Trillion According to a Famous Wall Street Analyst. Since Microsoft Corp (NASDAQ:MSFT) ranks 2nd on the list, it deserves a deeper look.
Wedbush Securities analyst Dan Ives has said in a fresh note that major tech giants are now running in a “race” to capture the $4 trillion AI market, calling GPUs the new “oil” or “gold” in the technology sector. Ives said that the AI “party” is just getting started and the clock is showing “9p.m. in a party going till 4 a.m. with the rest of the tech world now joining.” Ives thinks spending on GPUs and data centers is the “only game in town.” Ives thinks the “first wave” of AI benefited major technology giants leading the AI race, with the second, third and fourth “derivatives” beginning to show trickle-down effects on other companies.
In a separate investing event, Ives recently predicted that the AI-led bull run can last for another two to three years, saying in a year from now investors will be looking at $3 trillion to $4 trillion market caps for major tech companies.
“The tech bull market is just starting,” Ives reportedly said.
In his latest note Ives highlighted several stocks which he believes can benefit from the AI revolution. In this article we take a detailed look at these stocks and discuss their AI-related growth catalysts and see whether or not they are sound long-term investments. With each stock we have mentioned hedge fund sentiment. 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).
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Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 293
Dan Ives is highly bullish on the Redmond software company, saying on Twitter recently that he was seeing a “tidal wave of Copilot and Azure monetization” on the “doorstep” of Microsoft. Ives also increased his price target on MSFT to $550 from $500.
Last year, The Information reported that Microsoft Corp (NASDAQ:MSFT) was working on its own AI chips under a project codenamed “Athena,” to cut its reliance on Nvidia. UBS said in its latest report that Athena chips, along with Azure, position Microsoft Corp (NASDAQ:MSFT) to benefit from the opportunities in enabling layer in the AI value chain, while the firm named the company’s OpenAI investment as an opportunity in the intelligence layer. Copilot, Office and GitHub will help Microsoft Corp (NASDAQ:MSFT) profit in the application layer of AI, UBS believes.
Many Wall Street analysts are bullish on MSFT. New Street Research started covering the stock with a Buy rating. The firm said that Microsoft Corp (NASDAQ:MSFT) is well positioned to grow profit in the “low teens for years to come” even if the AI revolution fails to pan out. New Street Research has a $570 price target on Microsoft Corp (NASDAQ:MSFT).
Analysts believe Microsoft Corp’s (NASDAQ:MSFT) AI ecosystem around its products would strengthen its Cloud division thanks to Microsoft Corp’s (NASDAQ:MSFT) integration of AI into its Cloud products. Microsoft Corp’s (NASDAQ:MSFT) Intelligent Cloud segment’s profit in the latest quarter totaled $12.51 billion, a whopping 32% growth on a YoY basis.
Mar Vista Focus strategy stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its first quarter 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) continues to occupy a strong position, poised to capture market share as businesses navigate the transition to a digital-first landscape and embrace generative AI-driven solutions. The company’s commanding presence in the enterprise arena, combined with its comprehensive product portfolio encompassing Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS), establishes it as a crucial provider of IT solutions for companies of all sizes.
Microsoft is effectively executing its strategy in a sizable market by offering a roadmap for digital transformation and adoption of AI-driven solutions, such as ChatGPT, while enhancing productivity and reducing costs. Consequently, we anticipate that Microsoft’s solutions should exhibit resilience even in a more challenging macroeconomic environment, supporting low double-digit growth in intrinsic value within our investment horizon.”
Overall, Microsoft Corp (NASDAQ:MSFT) ranks 2nd on Insider Monkey’s list titled 12 Best AI Stocks Leading the ‘Big Tech Race’ to $4 Trillion According to a Famous Wall Street Analyst. While we acknowledge the potential of Microsoft Corp (NASDAQ:MSFT), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Microsoft Corp (NASDAQ:MSFT) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
