1. 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.”
While we acknowledge the potential of Microsoft Corporation (NASDAQ:MSFT), 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 the ones on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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