We recently compiled a list of the Jim Cramer’s 10 Handpicked Stocks to Watch. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against Jim Cramer’s other handpicked stocks.

In a recent episode of Mad Money, Jim Cramer expressed concern that there’s too much negativity in the market despite recent movements. He pointed out that while the Dow gained 38 points on Wednesday, the S&P fell 1.16%, and the NASDAQ dropped 3%, people seemed overly focused on what was going wrong. Although he’s not calling it a market bottom, he suggests it’s worth paying attention to what’s going right.

“On a day when the Dow inched up 38 points, the S&P dipped 1.16%, and the NASDAQ declined 3%, I’m willing to declare that there’s too much doom and gloom out there. Look, I’m not trying to call a bottom, let’s make that crystal clear, but I think it’s worth taking a hard look at what’s actually going right—not just what’s going wrong.”

Cramer emphasized that even though the market has been strong this year, heading into a historically tough election season and the worst month of the year means it’s not the time to declare everything is fine. He noted that according to his trusted S&P oscillator, which measures overbought or oversold conditions, the market isn’t oversold yet, so it’s risky to go all-in.

“Sure, the market’s up a lot this year as we head into a tricky election period and historically the worst month of the year. So, only a fool would ring the all-clear bell. Plus, we aren’t even oversold yet—at least not according to the S&P oscillator I swear by, which gauges whether there’s too much buying or selling compared to normal times. You don’t go all-in when the market is overbought like it is now; that rarely works.”

Cramer also countered the idea that a recession is inevitable due to the Federal Reserve’s struggle to control the economy. He agreed the economy is slowing, which is why consumer packaged goods and utility stocks are rallying while more sensitive sectors are struggling.

“At the risk of sounding too bullish, let me refute some of the biggest and baddest stories out there. First, let’s tackle the popular narrative that the economy is slowing at a faster pace than the Federal Reserve can control, leading to an inevitable recession. That’s why consumer packaged goods stocks and utilities are rallying while economically sensitive stocks have been crushed. I won’t deny that the economy is weakening.”

However, he stressed that a Fed rate cut is meant to counter economic weakness, not strength, and hoping for a rate cut while ignoring the downturn is unrealistic. He added that if the upcoming labor report is weak, recession-proof stocks may surge, but if it’s strong, hopes for a rate cut will fade.

“But let’s be realistic: You can’t hope for a Fed rate cut without acknowledging that there’s going to be some economic fallout. The Fed doesn’t cut rates when business is booming. That’s foolish thinking. Rate cuts are meant to combat economic weakness, not strength. If Friday’s labor report is weak, sure, we might see a huge rally in the so-called “recession-proof” stocks. But if the non-farm payroll number is too strong, forget about any rate cut hopes. You can’t have it both ways.”

Our Methodology

The article summarizes a recent episode of Jim Cramer’s Mad Money, where he discussed and recommended several stocks. This article focuses on ten companies that Cramer highlighted and examines how hedge funds perceive these stocks. The companies are ranked based on their level of hedge fund ownership, starting with the least owned and moving to the most owned.

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).

Microsoft Corporation (NASDAQ:MSFT)

Number of Hedge Fund Investors: 279

Jim Cramer emphasized that for stocks to stabilize, weaker shareholders need to sell off their positions. He pointed out that history often shows large market drops can turn into great buying opportunities. As an example, Cramer highlighted Microsoft Corporation (NASDAQ:MSFT), which lost $178 billion in market value on March 16, 2020, but later surged by 202%, far outpacing the S&P 500’s 131% gain over the same period. This demonstrates how significant downturns can set the stage for strong recoveries.

“Microsoft lost $178 billion in market cap on March 16th, 2020, but went on to surge 202%, compared to a 131% gain for the S&P 500 over the same period.”

In Q2 2024, Microsoft Corporation (NASDAQ:MSFT) showed strong financial performance with $60.8 billion in revenue, an 11% increase from the previous year, driven mainly by its cloud and AI businesses. Azure, Microsoft Corporation (NASDAQ:MSFT)’s cloud platform, saw a 29% rise in revenue, reinforcing its leading position in the cloud market. Microsoft Corporation (NASDAQ:MSFT)’s net income grew to $21.5 billion, up 15% from last year, and earnings per share reached $2.85, surpassing analyst predictions.

Microsoft Corporation (NASDAQ:MSFT) introduced new AI features in August 2024 for Azure and Microsoft 365, such as tools for automating report summaries and drafting emails, which are expected to enhance productivity and attract more users. Microsoft Corporation (NASDAQ:MSFT)’s collaboration with OpenAI, known for its ChatGPT technology, strengthens its AI capabilities.

Additionally, Microsoft Corporation (NASDAQ:MSFT)’s gaming division benefits from the successful acquisition of Activision Blizzard Inc. (NASDAQ:ATVI) and the expansion of Xbox Game Pass, positioning it well in the growing gaming sector. Microsoft Corporation (NASDAQ:MSFT)’s strong earnings, advances in cloud and AI technology, and strategic moves in gaming make it well-positioned for future success.

Alger Spectra Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:

“Microsoft Corporation (NASDAQ:MSFT) is a beneficiary of corporate America’s transformative digitization. The company operates through three segments: Productivity and Business Processes (Office, LinkedIn, and Dynamics), Intelligent Cloud (Server Products and Cloud Services, Azure, and Enterprise Services), and More Personal Computing (Windows, Devices, Gaming, and Search).

During the quarter, shares contributed to performance after the company reported strong fiscal third quarter results, underscoring its leadership position in the cloud and highlighted its role as a primary facilitator and beneficiary of AI adoption. Company revenue growth, operating margin, and earnings growth surpassed consensus expectations. The utility scale Azure cloud business grew 31% in constant currency of which 7% was AI related versus 3% two quarters ago.

Further, management noted most of the AI revenue continues to stem from inference rather than training indicating high quality AI applications by Microsoft’s clients. Management also indicated that the significant cost-cutting programs in corporate America are done, suggesting that the cost optimization headwinds previously impacting Azure’s growth are over.

Separately, management provided color on their new AI-productivity tool, Copilot, noting that approximately 60% of Fortune 500 companies are already using Copilot, and that the quarter witnessed a 50% increase in Copilot assistance integration within Teams. We continue to believe that Microsoft has the potential to hold a leading position in AI, given its innovative approach and demonstrated high unit volume growth opportunity.”

Overall MSFT ranks 1st on our list of Jim Cramer’s handpicked stocks to buy. While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. 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.