We recently compiled a list of the 10 Best American Stocks To Buy For Foreign Investors. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against the other American stocks.
With August Ending, What Can We Expect From US Markets?
Historically, September is considered to be the worst month for stocks. The S&P 500 index has generally averaged a decline in the month of September for decades, which has resulted in many financial news reporters, such as the Wall Street Journal, dubbing September as a weak month for US stocks. So with August coming to an end, many investors in the US and abroad may be wondering whether now is a good time to pick up US stocks for their portfolios.
While history can often be an accurate indicator of stock performance, this is not always the case. This year may very well be an outlier in the historical trend outlined above, seeing as many financial analysts are expecting the US Federal Reserve to move ahead with a rate cut this September. CNBC’s “Power Lunch” on August 21 highlighted that according to the Fed’s recent meeting minutes, it is quite probable that we will be seeing a rate cut this September, which will probably result in stock prices rising and the markets performing better. This is because when a rate cut is announced, consumers and businesses tend to increase their spending and investment, which has a direct and positive impact on stock prices, causing them to rise. As such, if we do see a rate cut next month, investors may actually benefit from investing in American stocks.
How Would a Potential Rate Cut Impact The Markets?
On August 22, Tom Lee, Fundstrat Global Advisors Managing Partner, joined CNBC’s “Squawk Box” to discuss the status of the US markets at present. Here’s what he had to say:
“The FMOC minutes that came out yesterday showed the Fed staff saying this is a strong labor market, while that jobs report that came out Friday and the revisions that just came out show a lot of jobs disappearing. It’s not a stronger market, and I think it gives more ammunition for the Fed to start a cutting cycle, and that’s gonna give a lot of life to the economy and to the markets. Especially cyclical stocks and small-cap stocks.”
According to Lee, investors looking to buy into US equities right now would benefit greatly from a rate cut if it does come about in September. A major beneficiary of such a cut would actually be the tech sector. In this regard, Lee said the following:
“I think tech is still in a good place because of AI, and NVIDIA should reinforce that. It’s not a demanding multiple, maybe 28x forward earnings, which is, for the best, one of the most important companies in the world, not a high multiple. So, if tech is in a good place, and then we get fed cuts, I think it allows the whole overall market to expand.”
Considering the above, US markets may actually be a good place to invest for foreign investors at present, and within these markets, tech may be a good place to start. This is why we’ve compiled a list of the best American stocks to buy for foreign investors, comprising most tech companies. Our list includes some of the best American tech stocks to buy, alongside some of the top US stocks for foreigners.
Our Methodology
We selected the most popular American stocks among major hedge funds to compile our list, by using Insider Monkey’s hedge fund data for the second quarter of 2024. These companies are considered to be the best US stocks to invest in today according to major institutional investors, and should thus be considered by foreign investors looking to buy into American equities.
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 Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) is a major big tech name. While it initially gained fame for its Windows and Office products, the company has since diversified its product and service offerings to include a cloud business, including its Azure cloud infrastructure service.
Considering Microsoft Corporation’s (NASDAQ:MSFT) leading role in both cloud computing and AI, investors in the stock have experienced immense growth in their portfolios. This is particularly because of the growth of Microsoft Corporation’s (NASDAQ:MSFT) AI products, most notably Azure OpenAI, which is now used by 65% of the Fortune 100. Another AI product developed by Microsoft Corporation (NASDAQ:MSFT), GitHub Copilot, now has about 1.8 million paid subscribers, which is also significantly contributing to Microsoft Corporation’s (NASDAQ:MSFT) earnings growth. Considering these factors, investors are picking up Microsoft Corporation (NASDAQ:MSFT) more enthusiastically than ever.
A total of 279 hedge funds held stakes in Microsoft Corporation (NASDAQ:MSFT) in the second quarter, with a total stake value of $89.1 billion.
Baron Funds mentioned Microsoft Corporation (NASDAQ:MSFT) in its second quarter 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 $135 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. The stock contributed to performance because of continued strong operating results and investor enthusiasm regarding Microsoft’s leadership across the secular megatrends of AI and cloud computing. Recent business momentum continued to show evidence of the strength and attractiveness of Microsoft’s product portfolio among its customer set: (1) Azure OpenAI – its suite of AI services – is now used by 65% of the Fortune 100 and contributed 7% of Azure revenue (an annualized run rate of $5.2 billion); (2) GitHub Copilot – its AI code writing service – is bending the productivity curve for developers (reports of 40%- plus improvements in developer efficiency) and now has 1.8 million paid subscribers, with growth accelerating to over 35% quarter-over-quarter; and (3) Copilot Studio – its AI application service that makes it easier for anyone to build an application, automate a workflow, or create a Copilot using natural language. 30,000 organizations across every industry have used Copilot Studio to customize Copilot for Microsoft 365 or build their own, up 175% quarter-over-quarter. In the March quarter, Microsoft again reported better-than-expected financial results, highlighted by Microsoft Cloud growing 23% year-over-year, with the fastest commercial bookings in six quarters, and Azure accelerating to 31% constant currency growth, up from 28% in the previous quarter. June quarter guidance came in-line with consensus, but the company provided higher guidance for the most important segment, Intelligent Cloud, on the back of continued strong trends across Azure and Azure OpenAI. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes.”
Overall MSFT ranks 2nd on our list of the best American stocks to buy for foreign investors. While we acknowledge the potential of MSFT as an investment, 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 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.
