1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders In Q2 2024: 279
Microsoft Corporation (NASDAQ:MSFT) is the world’s largest software company. The firm has a commanding presence in both consumer operating systems and enterprise cloud computing industries. Cloud computing was responsible for $28.5 out of Microsoft Corporation (NASDAQ:MSFT)’s $64 billion in revenue during fiscal Q4. The firm has sought to retain its advantages in the enterprise computing market by establishing a close partnership with OpenAI for artificial intelligence. Through AI, Microsoft Corporation (NASDAQ:MSFT) offers Copilot and other software to its consumer and enterprise users to improve productivity and conduct other operations. However, unlike Meta, Microsoft Corporation (NASDAQ:MSFT) does not develop its foundational AI model and relies on technology from OpenAI instead. This separates the control that the firm has over foundational AI, but CEO Satya Nadella has assured investors that his firm possesses all the AI tools that it needs. Additionally, due to the billions of dollars it has invested in AI, Microsoft Corporation (NASDAQ:MSFT)’s narrative is also dependent on its ability to generate profits from AI.
Baron Opportunity Fund mentioned Microsoft Corporation (NASDAQ:MSFT) in its Q3 2024 investor letter. Here is what the fund said:
“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.”
MSFT is UBS’ top tech based disruptive stock for 2030. While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that 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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