We recently published a list of Jim Cramer is Talking About 10 Falling Stocks Amid Latest Market Rotation. Since Microsoft Corp (NASDAQ:MSFT) ranks 2nd on the list, it deserves a deeper look.
Jim Cramer in a program last week tried to make sense of the decline in tech stocks, saying companies with the “best fundamentals” got “hammered once again.”
“I did not expect that to happen.”
Cramer said that sometimes it’s difficult to own the “winners.” The CNBC host said it’s important to understand the bear cases around stocks otherwise you will never know what “you are up against.”
Jim Cramer tried to find out whether the latest decline in top tech stocks was just a “periodic selloff” that presented an “opportunity.”
“When we get this kind of rotation, you never know whether these stocks are selling off because there’s something wrong or because they are up huge.”
Jim Cramer pointed to a caveat when it comes to holding winning stocks. When you have the losers, there are no profits, but when you own winners in your portfolio, you can see losses because people want to take some profits off the table, Cramer said.
The CNBC host said when top stocks go down, people holding those in their portfolios often end up thinking about whether they should also sell these stocks and if something has “changed.”
“From what I can tell you, nothing has changed about the stocks we are going talk about tonight. But it is true that the stocks are a heck of a lot more expensive than they were one year ago.”
In this program, we took a look at some top tech stocks that fell last week and explained the reasons they lost value according to Jim Cramer. We also discussed these companies’ fundamentals and hedge fund sentiment. 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).
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Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 293
While talking about Microsoft Corp (NASDAQ:MSFT), Jim Cramer in a latest program referred to comments from CNBC host David Faber, who thinks big data center spending could “turn out to be a big waste of money.”
Cramer wondered whether Microsoft Corp (NASDAQ:MSFT) data spending could also end up without big returns.
“I think Co-pilot and AI platform will be huge but will it be big enough to justify their investment, even if the stock sells for 37 times earnings, there is not enough room for failure.”
Jefferies analyst Brent Thill recently chose Microsoft Corp (NASDAQ:MSFT) as his top enterprise AI pick. While talking to CNBC, the analyst said Microsoft is in “great shape” with its “Copilot strategy” for the back half of 2024.
Dan Ives of Wedbush also believes MSFT is one of the leaders in the AI enterprise segment.
New Street Research started covering the stock with a Buy rating. The firm said that Microsoft Corp (NASDAQ:MSFT) is well positioned to grow profit in the “low teens for years to come” even if the AI revolution fails to pan out. New Street Research has a $570 price target on Microsoft Corp (NASDAQ:MSFT).
Analysts believe Microsoft Corp’s (NASDAQ:MSFT) AI ecosystem around its products would strengthen its Cloud division thanks to Microsoft Corp’s (NASDAQ:MSFT) integration of AI into its Cloud products. Microsoft Corp’s (NASDAQ:MSFT) Intelligent Cloud segment’s profit in the latest quarter totaled $12.51 billion, a whopping 32% growth on a YoY basis.
Microsoft Corp’s (NASDAQ:MSFT) huge investments to revive its Search business are also working. Bing’s market share has jumped to 3.64% as of April 2024, a 0.88 points gain on a YoY basis.
Wall Street expects Microsoft Corp’s (NASDAQ:MSFT) earnings to grow 12.50% next year. The stock’s forward P/E of 31 based on 2025 EPS makes it look attractive at the current levels. Average analyst estimate for Microsoft Corp (NASDAQ:MSFT) is $483, which presents a 14% upside potential from the current levels.
ClearBridge Sustainability Leaders Strategy stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“The Strategy trailed the Russell 3000 Index benchmark largely due to our diversified positioning, although we maintain a considerable portfolio allocation to large cap AI-related companies. These positions were indeed among our top contributors in the quarter, such as Microsoft Corporation (NASDAQ:MSFT). The company is finding more ways to deploy AI for sustainability objectives such as its ability to better measure, predict and optimize complex systems, which can help its partner communities reduce wildfire risk.”
Overall, Microsoft Corp (NASDAQ:MSFT) ranks 2nd on Insider Monkey’s list titled Jim Cramer is Talking About 10 Falling Stocks Amid Latest Market Rotation. While we acknowledge the potential of Microsoft Corp (NASDAQ:MSFT), our conviction lies in the belief that 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.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
