1. Microsoft Corporation (NASDAQ:MSFT)
Millennium Management’s Stake Value: $1.978 Billion
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) is a tech giant and a leading software, services and solutions developer. It is one of the billionaire Israel Englanders’ top stock picks owing to its role in the digital and artificial intelligence revolution. While the stock was up by about 15% in 2024, it underperformed the overall market, given that the S&P 500 was up by about 24%.
Nevertheless, Microsoft Corporation (NASDAQ:MSFT) is one of the stocks well poised to outperform in the long term as it continues to bet big on artificial intelligence. The company has already made about $14 billion in AI investments in OpenAI, consequently gaining access to key technologies that it can use to enhance its search engine, Bing and cloud computing unit Azure.
Given that the yearly revenue run rate for Microsoft’s AI business is predicted to surpass $10 billion in its fiscal 2025 second quarter, its success in monetizing these AI advancements is clear. Enterprise AI products from the company, primarily Copilots, have emerged as significant new sources of income.
Additionally, Microsoft Corporation (NASDAQ:MSFT) is a big player in the burgeoning cloud computing sector, with about 25% market share. In the first quarter of fiscal 2025, its revenues increased by a remarkable 33% year over year. With data centers spread across more than 60 countries and Azure OpenAI’s capabilities growing quickly, Microsoft is well-positioned for sustained growth.
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.”
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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