Billionaire David Tepper’s 10 Long-Term Stock Picks

2. Microsoft Corporation (NASDAQ:MSFT)

Value of Appaloosa Management’s 13F Position (9/30/2024): $417 million

Number of Hedge Fund Shareholders (9/30/2024): 284

Ranking second on the list of Appaloosa’s top long-term holdings is Microsoft Corporation (NASDAQ:MSFT), which has had a place in the fund’s 13F portfolio since Q1 2020. The fund cut its stake in the tech giant by 18% during Q3 to 970,000 shares, with the stock ranking as its fourth-largest position overall. Hedge fund ownership of Microsoft was flat during Q3 and has dipped by 9% over the past year.

Some investors are worried that Microsoft Corporation (NASDAQ:MSFT)’s lead in cloud services and generative AI is wilting, which has forced it to boost its genAI-related capital expenditures. While that could drag down free cash flow in the near term, the investments are expected to begin paying dividends in the second half of the company’s fiscal 2025, when new capabilities are rolled out for Azure.

Barclays predicts Microsoft’s Azure growth will accelerate in the second-half of FY25 to between 31% and 32%, while UBS is even more bullish, projecting 34% year-over-year growth. Loop Capital predicts that Microsoft’s free cash flow will still grow at a strong CAGR of 18% through FY27 despite the capex constraints, before accelerating to as high as 40% growth in FY30. The firm has a $550 price target on Microsoft.

RiverPark Large Growth Fund expects continued double-digit revenue and EPS growth for Microsoft Corporation (NASDAQ:MSFT) according to 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.”