2. Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 279
Answering a question about Microsoft Corp (NASDAQ:MSFT) and the declines it faced after its latest quarterly results, Cramer said:
“It should not take a beating. I thought they did a good job, the sellers were bullheaded. You know what, the stock is starting to make you and me look good.”
Microsoft Corp (NASDAQ:MSFT) shares recently fell after the company reported its latest quarterly results. Analysts believe most of the revenue beat came from PC segment, while investors were paying more attention to AI and Azure. Azure’s 34% growth met expectations, though guidance for next quarter fell short, projecting between 31% and 32% growth—1 percentage point below forecasts. This dip is attributed to delays in data center capacity from third-party providers, though Azure’s consumption trends remained steady.
Investors hoping for a rebound in IT spending were likely disappointed, as stable Azure consumption suggests no significant uptick in the second half of the year. In addition, the lower-than-expected Q2 guidance underscored tempered growth expectations.
AI services, however, contributed a robust 12 points to Azure’s growth, a steady continuation from the previous quarter. Microsoft’s management confirmed strong demand for AI services, although supply constraints are limiting further expansion. Microsoft Corp (NASDAQ:MSFT) anticipates AI-related revenues, including M365 Copilot and Azure AI, could reach $10 billion annually by next quarter—making it one of the fastest-growing segments in Microsoft Corp (NASDAQ:MSFT)’s history.
Baron Opportunity Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q3 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is the world’s largest software and cloud computing company. Microsoft was traditionally known for its Windows and Office products, but over the last five years it has built a $147 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. Shares gave back some gains from strong performance over the first half of this year. For the fourth quarter of fiscal year 2024, Microsoft reported a strong quarter with total revenue growing 16%, in line with the Street; Microsoft Cloud up 22%; Azure up 30%; 43% operating income margins; and 36% free cash flow margins. Core Azure growth came in one point shy of expectations, however, due to a soft European market and continued constraints on AI compute capacity. In the same vein, while Microsoft reiterated its fiscal 2025 targets of double-digit top-line and operating income growth, quarterly guidance called for Azure growth to slow a bit before accelerating in the back half of the fiscal year, as capital expenditures increase, yielding an expansion of AI compute capacity. We believe this investment is a leading indicator for growth, with more than half of the spend related to durable land and data center build outs, which should monetize over the next 15-plus years. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes, and we remain investors.”
