We recently compiled a list of the 13 Best American Tech Stocks To Buy According to Short Sellers. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against the other American tech stocks.
Tech stocks have outperformed the stock market for several years and account for over 30% of the market’s overall holdings. With market values estimated at trillions of dollars, the majority of the lauded Magnificent Seven stocks are American tech companies that are still expanding. Technology is constantly evolving, and investors have a lot of opportunities because of this ongoing advancement.
This dynamic progress was reflected in the US stock market when it rose more than 3% in the second quarter of 2024. In terms of the trade in artificial intelligence, technology companies remained at the top, and this trend did not appear to be slowing down throughout the quarter. The largest companies have outperformed the market this year, which has been a remarkable trend. The 500 largest companies’ large-cap market saw gains of 4.4% in Q2 YoY, increasing its 2024 return to above 15%. In contrast, the small-cap market saw a 3.3% drop, translating into a 1.6% 2024 return.
Even though technology companies outperformed in Q2 FY2024, Main Street Research’s James Demmert cautions investors not to treat all of them the same. Instead, they should prioritize those tech firms that can deliver consistent earnings, especially in an uncertain economy.
Investors should also stay informed about the 2024 tech industry statistics. According to the Information Technology and Innovation Foundation, almost one-third of the growth in the US economy is attributed to the IT sector, which is the main driver of the country’s economy. Similarly, the United States accounts for one-third of the world’s information technology market, according to the International Trade Administration, making it the largest tech market in the world. Computer and IT jobs reported a median annual wage of $104,420 in May 2023, while 108,503 college graduates with bachelor’s degrees in computer and information sciences graduated in 2022, a 3.5% increase YoY. The average yearly salary for tech majors is $90,000.
According to a report, tech trends in 2023 were dominated by electrification/renewables and generative AI. Internet searches for generative AI increased by 700%, and the area received significant funding as huge language models processed more data and expanded modalities. Even while global IT investment declined, electrification and renewables continued to draw large amounts of capital. These industries continue to have a high volume of job postings, signifying potential for long-term growth.
Looking forward, according to the Deloitte 2024 technology industry outlook, in the wake of current macroeconomic headwinds such as high inflation and supply chain disruptions, the technology industry confronts a cautious 2024 recovery. As per Deloitte’s Q4 2023 study, 62% of tech executives believe the industry is “healthy,” with growth anticipated in the areas of cybersecurity, cloud computing, and artificial intelligence. By late 2024, generative AI is expected to have a major impact on enterprise software and elevate operational efficiency. Tech companies and startups are investing more in AI, but enterprise adoption is still sluggish. However, this is predicted to change in the second half of 2024. Market expansion is anticipated to be propelled by enterprise expenditure on AI and IT services. Nonetheless, regulations in the EU and the US focusing on data privacy, sustainability, and AI ethics continue to provide challenges, forcing companies to follow regulations while leveraging these for competitive advantage. To reduce geopolitical risks and guarantee uninterrupted growth, supply networks will need to strategically change, and effective operations will need to be prioritized.
Methodology:
We sifted through holdings of tech ETFs and online rankings to form an initial list of 25 American tech stocks. Then we selected the 13 stocks that had the lowest percentage of their shares shorted. The stocks are ranked in ascending order of the lowest percentage of their shares shorted.
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)
% of shares shorted: 0.74%
Microsoft Corporation (NASDAQ:MSFT) is one of two public cloud providers capable of delivering a broad range of PaaS/IaaS solutions at scale. The business has become a leader in AI as well, mainly because of its investment in OpenAI. Notably, the American tech company has had remarkable success upselling customers on higher-priced Office 365 subscriptions that come with advanced phone functionality. These elements work together to create a more concentrated business that produces remarkable revenue growth, high and rising margins, and strengthens relationships with clients.
Shares of Microsoft Corp. (NASDAQ:MSFT) recently dropped after the company’s most recent quarterly reports revealed that its Cloud business growth was less than anticipated. The company has revised its revenue estimate for the current quarter to between $63.8B and $64.8B from the $65.07B estimate. Azure revenue for MSFT is anticipated to grow by 28% and 29% annually.
The integration of Copilot AI, according to analysts, is responsible for the firm’s development across several areas in its latest quarter. Office commercial sales grew by 10% YoY $48 billion, while Dynamics software sales have increased by 19% YoY. Bing also experienced a 3% YoY spike in users switching from Google Search because of its AI features.
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.”
The tech giant has hedge fund sentiments of 279 in Q2 2024. Michael Larson’s Bill & Melinda Gates Foundation Trust is the largest shareholder in the company, with 34,889,597 shares worth $15.60 billion.
Overall MSFT ranks 3rd on our list of the best American tech stocks to buy according to short sellers. While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. 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.