We recently published a list of 7 Best American Stocks To Buy and Hold in 2024. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against other best American stocks to buy and hold in 2024.
Neutral Stance Amid Uncertainties
The tech sector has been showing positive performance amid market concerns, driven by improved earnings estimates and substantial investments in artificial intelligence. Approximately 40% of operating cash flow is currently allocated to AI, raising questions about when these investments will begin to yield returns. The strong profit margins of mega-cap stocks, averaging over 23%, compared to just over 8.5% for other sectors, suggest continued capital inflows into tech companies demonstrating earnings strength. While some consolidation and growth slowdown may occur, there is confidence that investor sentiment will eventually lead to a resurgence in these stocks.
As sentiments shift regarding major tech stocks, other profitable tech companies are maintaining positive momentum in the market. There was a conversation regarding this, covered a few days back in our article about the 10 Most Profitable NASDAQ Stocks To Invest In, where Jason Snipe, Odyssey Capital Advisors principal, discussed the tech sector’s mega-cap momentum, particularly in light of recent mega-cap stock downgrades and significant investor outflows. Here’s an excerpt from his sentiment:
“…This focus on AI has contributed to some recent downgrades but also suggests continued upside potential for select names within the sector.
…He acknowledged that while there may be some consolidation and a slowdown in growth, he believes that investors’ muscle memory will eventually lead to a resurgence in these stocks.
Snipe’s analysis underscores the complexities facing the tech sector amid market volatility and evolving economic conditions. While challenges persist, particularly with mega-cap stocks experiencing downgrades, there are also significant opportunities driven by innovation and strong profit margins that could support continued growth in this space…”
Katie Stockton, Fairlead Strategies founder, joined CNBC’s ‘Closing Bell’ on October 17 and highlighted that there’s a likelihood that the markets could move into choppier territory. Katie Stockton characterized her stance as neutral regarding the indices despite the strength of the trend and the participation of most stocks on the upside. She noted that while short-term momentum is currently positive, particularly behind major indices, there are concerns about potential problems if key players like NVIDIA falter. She highlighted that sentiment appears overly bullish or greedy, as evidenced by the Fear and Greed Index reaching an extreme level of 5%. This situation makes it challenging for the market to sustain overbought conditions, which are prevalent across various timeframes.
Stockton anticipates a pullback or possibly a more significant corrective phase in the fourth quarter for the S&P 500, suggesting that this could mark the beginning of a range-bound environment. She pointed to indicators such as the VIX, which has entered a new higher volatility cycle, and mentioned signs of long-term exhaustion indicated by the DeMark indicators, levels not seen collectively since late 2021. While this does not necessarily signal an impending bear market, it does enhance the likelihood of experiencing a choppier trading environment.
When asked about the recent performance of banks and cyclical stocks compared to defensive stocks, Stockton acknowledged that while there has been a positive move from the financial sector contributing to the S&P 500’s recent gains, it is too early to conclude that this represents a breakout in relative strength for financials. She indicated that most metrics suggest financials will likely perform in line with broader market trends rather than leading them. Furthermore, she expressed concern that mega-cap sectors are poised to lose their leadership position, which could pose challenges to overall market performance.
Regarding small-cap stocks, Stockton noted that while the Russell 2000 index made another attempt at an upside move, closing close to 2,300 with a 1.6% increase, long-term trends still indicate underperformance relative to the S&P 500. She pointed out that there has not been a breakout in the Russell 2000, which remains stalled below resistance levels established during summer highs. Consequently, she does not see actionable opportunities in small caps at this time and anticipates neutral trading conditions for this segment.
On the topic of bonds, Stockton mentioned that Treasury yields have shown some upside momentum but backed off recently. She sees potential entry points in Treasury bond proxies like TLT (iShares 20+ Year Treasury Bond ETF), suggesting signs of short-term downside exhaustion within a broader long-term uptrend for fixed income. She believes there is an opportunity for investors to enter Treasury bond proxies now, while also expecting yields to stall without significant long-term declines.
Her insights highlight her focus on maintaining balance amid prevailing uncertainties in both equity and bond markets.
Methodology
To find the best American stocks, we used Insider Monkey’s proprietary database to find US stocks that were the most popular among elite hedge funds. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
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).
A development team working together to create the next version of Windows.
Microsoft Corp. (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corp. (NASDAQ:MSFT) develops, licenses, and supports computer software, consumer electronics, and personal computers. It makes revenue by designing and selling hardware, and by delivering relevant online advertising to a global customer audience.
FQ4 2024 was a success for the company, with revenue up 15.20%, driven by Microsoft Cloud revenue up 21% due to record bookings. Individual Office sales were up 4%, and Dynamics ERP and CRM software sales grew 19%. Bing saw a 3% increase. Azure revenue surged by 30%. Partnerships with Lumen Technologies and Palantir strengthen its AI leadership and cloud capabilities.
The company recently settled a lawsuit filed by a group of gamers who opposed the company’s acquisition of Activision Blizzard. The terms of the settlement were not disclosed, but both parties agreed to dismiss the lawsuit and cover their own costs. This marks the end of a lengthy legal battle that raised concerns about competition in the video game industry.
As October began, Placing Platform Limited (PPL) partnered with Microsoft Corp. (NASDAQ:MSFT) to enhance its specialty insurance trading platform. Through this collaboration, PPL will integrate the company’s data and AI capabilities to create a more efficient and data-driven trading platform. Key features include the development of a productivity tool, an intelligent data hub, and enhanced collaboration features.
The company’s recent healthcare AI innovations offer a promising but risky investment opportunity, with the potential for high growth but challenges in a competitive and regulated market. Microsoft Corp.’s (NASDAQ:MSFT) continued investment in AI and cloud infrastructure positions it as a market leader. Its strong financials, robust cloud growth, and positive outlook make it a promising investment option.
Generation Investment Management Global Equity Strategy stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Generative AI’s hunger for power has increased disproportionately with its intelligence. According to one estimate, OpenAI’s GPT-4 required 50 gigawatt hours (GWh) of electricity to train, much more than the 1.3 GWh needed for GPT-3.3 And then AI requires even more power when it is put to use (so called ‘inference’). Some of the latest trends worry us. Microsoft Corporation (NASDAQ:MSFT) appears to be slipping in its ESG goals, with its greenhouse gas emissions rising again last year, as it invests in becoming a big player in AI. It is struggling in particular to curb its Scope 3 emissions in the capital goods category – nowhere more so than in the activity associated with the construction of data centres: both the embedded carbon in construction materials like steel and cement, as well as the emissions from the manufacturing of hardware components such as semiconductors, servers and racks. Google’s emissions have risen by close to 50% in the past five years.
We feel it is worth dwelling on Microsoft for a few moments, since we suspect you will be hearing a lot more about the relationship between AI and sustainability in the coming months. The bottom line is that we continue to see Microsoft as a sustainability leader. In the case of Scope 2 emissions, the company covers 100% of its electricity use with purchases of renewable energy. Crucially, though, the majority of this green energy is directly sourced via power purchase agreements, which bring new renewable capacity to the grid. Microsoft is also committed to operating 24/7 on renewable power by 2030, a policy that will help bring energy storage onto the grid as well…” (Click here to read the full text)
Overall, MSFT ranks 2nd on our list of best American stocks to buy and hold in 2024. While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high 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.
