We recently compiled a list of the 8 best FAANG 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 FAANG stocks to buy according to analysts.

“We Are Just at the Beginning of the AI Buildout”

Each of the big tech stocks has revealed its plans to invest $50 to $100 billion in GPU compute, evidence that Artificial intelligence may be the biggest theme right now. On October 21, Ray Wang, Constellation Research’s principal analyst, founder, and chairman, joined CNBC’s ‘Squawk Box’ to share his stance on the tech sector, especially the Magnificent Seven, and the role of artificial intelligence.

The third quarter earnings season is upon us some of the mag seven are yet to report their quarterly results. Wang suggests artificial intelligence is just beginning to pan out and will stand as the major theme for a long while. He adds that companies, among the mega-caps, have poured hundreds of billions into AI during the first half of the year, and plan to add more during the second. He also shared that these mega-cap companies are driving demand as well.

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While these expenditures may seem to have little to no payoff, historically investors were also worried about companies investing in the Internet. However, Wang dissects that the internet is not the same as artificial intelligence. The internet was rather open and decentralized and had many winners. AI, on the other hand, is more centralized, closed, and expensive, meaning that only a few players are going to make a mark.

Wang also shares that he owns all of the magnificent seven stocks. An interesting conjunction, highlighted by Wang, is that across search, social media, and commerce, most of the stocks in the Mag 7 have digital ads. Across all these three avenues, the next players cannot compete with the Magnificent Seven, especially in terms of revenue. On the regulatory front, he emphasized that the sector needs some relief. He adds that the tech sector needs to play out mergers and currently IPOs are lined up, explaining why everything is on hold.

FAANG is an acronym, which originally began as FANG, consisting of five major technology companies. The original term, FANG was coined by Jim Cramer in 2013 because, according to him, the four tech stocks belonged together as they functioned across similar themes of digitization and the web. FAANG today is much broader and includes technology companies that are shaping the future, which may also be categorized as the magnificent seven. That said, let’s take a look at the 8 best FAANG stocks to buy according to analysts.

Our Methodology

To come up with the 8 best FAANG stocks to buy according to analysts, we went over the NYSE FANG+ index and picked the latest holdings. We then examined the stocks and picked the ones with the highest analyst upside potential as of October 22, 2024. We also added the hedge fund sentiment of each stock as of Q2 2024. The list is in ascending order of analyst upside primarily and hedge fund holders, as of Q2 2024, secondarily.

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).

Microsoft Corporation (NASDAQ:MSFT)

Analyst Upside as of October 22, 2024: 16.5%

Number of Hedge Fund Holders: 279

Microsoft Corporation (NASDAQ:MSFT) is a technology giant that was originally not part of the FAANG stocks due to its mature business model. However, as the company ventured into new technologies and AI, it does represent a breakthrough stock that can influence the future.

Microsoft Corporation (NASDAQ:MSFT) is part of the list because of its strategic investments, positioning it as a leader in AI. On September 23, Gil Luria, D.A. Davidson’s managing director, appeared on Yahoo Finance where he talked about MSFT’s lead in the tech and AI business. He suggests that the company was involved with OpenAI for a long time, giving them a headstart. Additionally, the company knew ChatGPT was coming before anyone else. Similarly, a year and a half ago, the company launched commercial products related to artificial intelligence. However, he does acknowledge that Amazon and Google have been catching up to MSFT, slowly diminishing the lead.

As Luria highlighted, Microsoft Corporation (NASDAQ:MSFT) has usually been the first to jump on crucial trends and identify market shifts. Similarly, Microsoft Corporation (NASDAQ:MSFT) was among the first mega-cap companies to pour capital into nuclear energy. On September 20, the company signed a deal to reopen Three Mile Island, the site of one of the worst nuclear accidents in the US, to power and advance its AI technologies.

On the AI front, the company closed deals with startups and technology companies to run their workloads on Microsoft Azure, its cloud platform. On October 10, the company revealed several breakthrough AI capabilities in healthcare that offer medical imaging, clinical records management, and genomics. Previously on October 3, Microsoft Corporation (NASDAQ:MSFT) closed a partnership with Rezolve AI to develop innovative AI-backed online retail solutions.

Microsoft Corporation (NASDAQ:MSFT) is a long-standing company with immensely strong fundamentals. This coupled with its investments in AI and data make it one of the best FAANG stocks to buy according to analysts.

Overall MSFT ranks 2nd among the 8 best FAANG stocks to buy according to analysts. While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher 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.