We recently compiled a list of the 12 Best Cloud Computing Stocks to Buy According to Analysts. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against the other cloud computing stocks.
Cloud computing enables companies to store their infrastructures remotely using the Internet, ultimately reducing costs and creating value. As per Gartner, worldwide end-user spending on public cloud services is expected to reach $723.4 billion in 2025, reflecting a rise from $595.7 billion in 2024. The use of Al technologies in IT and business operations continues to accelerate the role of cloud computing in helping operations and outcomes. The cloud use cases have been expanding with an increased focus on distributed, hybrid, cloud-native, and multi-cloud environments, aided by a cross-cloud framework, which should make the public cloud services market achieve a growth rate of 21.5% in 2025.
Gartner believes that 90% of organizations will adopt a hybrid cloud approach through 2027. Resultantly, all segments of the cloud market should see a double-digit growth rate in 2025 demonstrating how I&O (Infrastructure and Operations) leaders remain focused on effectively integrating I&O into their GenAl strategies and laying the groundwork for running Al and GenAl infrastructure at the edge.
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Key Trends to Watch Out in 2025
Moving forward, the concept of cloud computing is expected to change because of technological enhancements and dynamic business requirements. As per Nasscom Community, quantum computing integration, AI-driven cloud services and multi-cloud, and interoperability are some of the future trends in cloud computing. The emerging field of quantum computing focuses on changing how data processing is done because it can handle even the most complicated computations that some other conventional systems cannot solve. Over the next 5 years, more cloud services are expected to offer its clients quantum computing capabilities, which should in turn help in cryptography, drug development, material science, and optimization.
AI and ML are some of the leading technologies behind innovation in the cloud. Nasscom Community believes that pervasive AI is expected to be in each layer of the cloud system, right from the server level to the customer service level by 2025. Moving forward, AI algorithms should help in predictive analysis and, therefore, prevent problems that can arise with infrastructure, control workload, and reduce automation of tedious tasks.
Future developments in the cloud computing field are expected to enhance the multi-cloud strategies involving using more than one cloud service provider between the business and the cloud altogether. Notably, distributing workloads among several cloud providers would help enterprises maximize cost and performance. The businesses have been dividing their workload across multiple cloud service providers in a bid to control data and resources and use the strength of each cloud service provider.
Our Methodology
To list the 12 Best Cloud Computing Stocks to Buy According to Analysts, we conducted extensive research and sifted through several online rankings. After getting the initial list of 18 stocks, we chose the ones that were popular among hedge funds and that analysts saw the most upside to. Next, the stocks were arranged in ascending order of their average upside potential, as of 10th January. We also mentioned the hedge fund sentiment around each stock, as of Q3 2024.
At Insider Monkey we are obsessed with 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
Average Upside Potential: 19.3%
Microsoft Corporation (NASDAQ:MSFT) is involved in the cloud computing business through its cloud platform, Microsoft Azure. It provides a wide range of cloud services, which include infrastructure-as-a-service (laaS), platform-as-a-service (PaaS), and software-as-a-service (SaaS). While Microsoft Corporation (NASDAQ:MSFT) faced capacity constraints that impacted Azure’s growth potential, it remains optimistic about future prospects. The integration of Al capabilities into Azure cloud services should contribute to Azure’s growth rates. In Q1 2025, Azure’s revenue saw an increase of 33%, thanks to the Al services.
Azure growth included ~12 points from Al services, similar to last quarter. Microsoft Corporation (NASDAQ:MSFT) highlighted that demand continues to be higher than its available capacity. Even non-Al growth trends were also in line with expectations with customers continuing to migrate and modernize on its Azure platform. Mark Moerdler from Bernstein remains optimistic about Microsoft Corporation (NASDAQ:MSFT)’s growth prospects. The expected acceleration in Azure’s revenue growth, anticipated to reach 35% – 40% YoY in H1 2025, was the critical driver behind optimism.
Talking about the capacity constraints, the expansion of the global data center network should help Microsoft Corporation (NASDAQ:MSFT) address these challenges. As per the company’s Vice Chair and President Brad Smith, the company expects to spend $80 billion in fiscal 2025 on the construction of data centers capable of handling Al workloads. Notably, more than half of the anticipated Al infrastructure spending is expected to take place in the US.
RiverPark Advisors, an investment advisory firm and sponsor of the RiverPark family of mutual funds, released its Q3 2024 investor letter. Here is what the fund said:
“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.”
Overall MSFT ranks 5th on our list of the best cloud computing stocks to buy according to analysts. 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 time frame. If you are looking for a deeply undervalued 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.