We recently published a list of 10 Best Wide Moat Stocks to Invest In. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against other best wide moat stocks to invest in.
Russell Investments continues to monitor and analyze the potential for policy changes in President Trump’s second term in office. In December 2024, the North American Chief Investment Strategist noted 4 areas of focus- i.e., tariffs, immigration, fiscal policy, and deregulation. Let us see what impact tariffs can have on the broader US economy and what should investors do in these uncertain circumstances.
Impact of Tariffs on US
As per Russell Investments, the macroeconomic uncertainty is expected to continue to remain elevated in the near term, while the investors keenly wait to see whether the tariffs get scrapped after the 30-day period. To give a brief context, the US President announced that he and Mexican President Claudia Sheinbaum have decided to delay the imposition of these tariffs for 30 days. Notably, Trump also announced that he has delayed the imposition of tariffs on Canadian goods for 30 days.
If tariffs get implemented, there can be a modest one-time increase in price levels for US consumers, says the investment firm. This might push out marginally when inflation will return to the target range of 2%. However, in the base-case scenario, the firm expects that the US Fed will succeed in returning inflation to 2%. From a growth perspective, while the tariffs might create a modest drag on the US economic activity, the broader economy is expected to avoid a recession.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
What Should Be the Strategy for Investors?
Saxo Bank A/S believes that investors are required to ignore the noise and remain focused on fundamentals. While short-term volatility remains inevitable, investors need to prioritize long-term growth trends over reactionary trades. Therefore, investing in quality companies having strong domestic revenue, pricing power, and resilient business models is expected to withstand such headwinds. The bank believes that investing in high dividend-paying stocks in defensive sectors such as consumer staples might help mitigate the short-term negative impacts. Furthermore, the focus can be on secular growth themes that have the potential to transcend political cycles.
Elsewhere, Russell Investments opines that investors can benefit from staying disciplined during uncertain times. While the tariffs can adversely impact the broader economic growth, mainly in Mexico and Canada, there is a possibility of central banks and governments stepping in with support to mitigate the impacts of tariffs.
Our Methodology
To list the 10 Best Wide Moat Stocks to Invest In, we scanned through VanEck Morningstar Wide Moat ETF and some online rankings. Next, we chose the stocks that were popular among hedge funds. Finally, the stocks are arranged in the ascending order of their hedge fund sentiments, 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
Microsoft Corporation (NASDAQ:MSFT) continues to enjoy a wide economic moat, courtesy of 2 segments, i.e., productivity and business processes and intelligent cloud. The company’s customers tend to favour its products as stand-alone solutions and appreciate its immense product breadth. Furthermore, Microsoft Corporation (NASDAQ:MSFT)’s applications remain tightly integrated, making the products more appealing. Now, given the inclusion of OpenAI’s machine learning technology, the company has further strengthened its economic moat.
Morningstar opines that Microsoft Corporation (NASDAQ:MSFT) continues to maintain healthy AI demand and monetization. Overall, the expansion of hybrid cloud environments, proliferation of AI, and Azure are expected to fuel growth in 2025. Microsoft Corporation (NASDAQ:MSFT) has been using its on-premises dominance to enable clients to move to the cloud. Anyone using the company’s wildly popular suite of apps – including Word, PowerPoint, and Excel – will stick to its ecosystem, aiding long-term revenue visibility.
Therefore, increased customer engagement supports it in generating revenue from the initial sale of services, enabling the company to upsell and cross-sell other ones too. 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 2nd on our list of best wide moat stocks to invest in. 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.