Wells Fargo’s Tech Stocks To Beat The S&P: 14 Top AI & Non-AI Stocks

5. Microsoft Corporation (NASDAQ:MSFT)

Number of Hedge Fund Holders In Q3 2024: 279

NTM EPS Estimate: $14.20

Microsoft Corporation (NASDAQ:MSFT) is one of the biggest technology companies in the world. The firm dominates the global consumer operating system market through Windows, and it also enjoys a considerable presence in the cloud computing market through its Azure platform. Microsoft Corporation (NASDAQ:MSFT) is one of the earliest movers in the software side of the AI market. This is because its investment in OpenAI has allowed it to access OpenAI’s foundational AI models for its software products. Yet, the billions that Microsoft Corporation (NASDAQ:MSFT) has invested in OpenAI have also baked into AI-associated profitability into its hypothesis. The firm has to convince investors that it is earning profits from AI via Azure or risk losing stock value. This has been the case in H2 2024 as well since Microsoft Corporation (NASDAQ:MSFT)’s shares are down by 9.5% since their July peak as investors adjust AI optimism.

Baron Opportunity Fund mentioned Microsoft Corporation (NASDAQ:MSFT) in its Q3 2024 investor letter. Here is what it 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.”