We recently published a list of 8 Best Machine Learning Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against other best machine learning stocks to buy according to hedge funds.
Earlier this month, the president of Potomac Wealth Advisors, Mark Avallone, discussed the tech sector’s investment potential. We talked about his sentiment in more detail in one of our other articles, 12 Best NASDAQ Stocks To Buy in 2025. Here’s an excerpt from it:
“He noted that market rates have surged to all-time highs, with a significant increase of 1,800 points since October 2023. Avallone emphasizes that tech stocks, particularly cash-flowing mega-cap and large-cap companies, have shown resilience against rising rates, attributing this to improved operational efficiencies and ongoing technology spending even in a slowing economy.”
Just like Avallone, several analysts hold a positive outlook for tech stocks as we go into 2025. Daniel Ives, Global Head of Technology Research at Wedbush Securities, thinks that the AI revolution is driving this strength in tech. On January 13, he appeared on CNBC and discussed the tech sector in light of rising interest rates and a strengthening dollar. He noted that the 10-year Treasury yield is currently at 4.75%, which is exerting pressure on tech stocks. Despite this, Ives expressed optimism about the sector’s potential for growth and suggested that the current environment presents opportunities to invest in leading companies. He emphasized that capital expenditures are robust on the consumer side and indicate stronger-than-expected earnings ahead. Ives believes that we are only halfway through the bull market, which he views as a positive sign for tech stocks moving forward.
Ives discussed Palantir Technologies, which has faced selling pressure despite being a top S&P 500 performer last year. He warned that overlooking it due to high valuation could mean missing key market opportunities, similar to Oracle and Salesforce, especially with $2 trillion in expected AI capital expenditures. Ives also highlighted the impact of a rising dollar on tech, particularly Apple’s vulnerability, while remaining bullish on the sector. He emphasized the need for diversification, citing Microsoft and NVIDIA as indicators for AI growth.
His optimism about the tech sector highlights opportunities as investors navigate this landscape.
Methodology
We first sifted through ETFs, online rankings, and internet lists to compile a list of the top ML stocks. We then selected the 8 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q3 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
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).
A development team working together to create the next version of Windows.
Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) is a technology company that develops and supports a range of software, services, and devices. Its key offerings include the Windows operating system, Office productivity suite, Azure cloud computing platform, and Xbox gaming consoles.
Loop Capital analyst Yun Kim raised the stock’s price target from $500 to $550, maintaining a Buy rating. The revised estimates for some software companies, along with Microsoft Corp.’s (NASDAQ:MSFT) investments in AI, suggest that the current market expectations may be too low. Loop Capital believes that Microsoft Corp. (NASDAQ:MSFT) deserves a higher valuation due to its strong market position and promising future growth.
The company is diversifying its AI model ecosystem within Microsoft 365 through Copilot, which is an AI-powered assistant integrated into Microsoft 365. It uses a mix of internal models (like Phi-4) and third-party options alongside OpenAI. This multi-model approach allows for customized AI features (like improved editing in Word) while also managing costs and performance. While initial adoption faced some hurdles, Copilot is gaining popularity, with 70% of Fortune 500 companies already using it.
Creative Strategies’ Ben Bajarin believes that the company’s enterprise AI traction, particularly with Copilot, will take time to materialize. Although many companies plan to use Copilot, it’s uncertain how much money Microsoft Corp. (NASDAQ:MSFT) will make from it. The company also plans to invest ~$80 billion in AI-enabled data centers by FY2025, with over half of this investment allocated within the US. This shows its commitment to developing and deploying AI and ML applications.
Overall, MSFT ranks 2nd on our list of best machine learning stocks to buy according to hedge funds. While we acknowledge the growth potential of MSFT, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than 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.
