1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Investors: 279
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Microsoft Corporation (NASDAQ:MSFT) is a strong investment due to its leadership in cloud computing and artificial intelligence, positioning it for ongoing growth. In 2024, Microsoft Corporation (NASDAQ:MSFT) reported impressive financial results, with a 20% increase in profits and a 17% rise in revenue to $61.9 billion in Q3, driven by a 31% growth in its Azure cloud platform.
Microsoft Corporation (NASDAQ:MSFT)’s substantial investments in AI, including its partnership with OpenAI, have bolstered its market position. Products like Microsoft 365 Copilot and Azure OpenAI services are expected to bring in billions in annual revenue. Analysts are positive about Microsoft Corporation (NASDAQ:MSFT)’s potential in generative AI, with price targets between $500 and $550.
Additionally, Microsoft Corporation (NASDAQ:MSFT) is expanding its global reach with a $2.9 billion investment in Japan to enhance its cloud and AI capabilities. Microsoft Corporation (NASDAQ:MSFT) also saw a 51% increase in gaming revenue, partly due to its Activision Blizzard acquisition, showcasing the strength of its diverse business segments. Microsoft Corporation (NASDAQ:MSFT)’s leadership in AI and cloud computing, along with strategic investments, makes it a top stock pick for 2024 and beyond, with considerable growth potential.
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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