We recently compiled a list of the Jim Cramer’s Top 10 Stock Picks You Can’t Ignore. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against Jim Cramer’s top stock picks.
In a recent episode of Mad Money, Jim Cramer discussed the current divide between tech stocks and other sectors, highlighting their tendency to move in opposite directions. For example, on a day when the Dow Jones Industrial Average increased by 228 points and the S&P 500 went up by 0.13%, the NASDAQ, which is heavily influenced by tech stocks, dropped by 0.52%. Cramer thinks it’s because there isn’t enough new money flowing into the market.
“How did we get to this bizarre dichotomy between tech stocks and pretty much everything else, where the two groups now almost always seem to move in opposite directions? Take today: the Dow Jones Industrial Average gained 228 points, the S&P advanced 0.13%, but the NASDAQ—with all that tech in it—dropped a bomb. Yes, it fell 0.52%. How could there be such a schism?”
As a result, large institutions need to move their investments between sectors since they can’t invest in both at once. This shift is due to market mechanics rather than fundamental news. When stocks are already doing well, it’s difficult to attract new investment, especially when safer options provide attractive returns. Therefore, either tech stocks or other sectors will perform well, but not both simultaneously.
“It’s because there’s not enough money coming in from the sidelines, so these big institutions have to swap out of one group if they want to buy stock in another. Yet this action has nothing to do with fundamentals; it’s not about the news, it’s about pure market mechanics. When stocks are already red hot, it’s hard to attract new capital from the sidelines, especially when you can get a cozy 4% return for doing nothing. So, either tech wins or everything else wins, but there’s not enough cash for both of them to win at the same time.”
Market Shake-Up: Clear Winners and Losers Amid Fed’s Critical Rate Decision
Cramer notes that this situation results in distinct winners and losers, rather than a range of performance on a positive day. This is occurring amid uncertainty about whether the Federal Reserve will reduce interest rates by 25 or 50 basis points in their upcoming meeting. Cramer also notes that, despite his usual reluctance to speculate on the Fed’s decisions, recent market movements have been swayed by expectations of rate cuts. For example, when The Wall Street Journal indicated the Fed might choose a 50 basis point reduction, there was a notable shift towards cyclical stocks, particularly those related to housing. This shift, along with other positive news, contributed to the market’s best week of the year.
“What happens? We get winners and losers—not big winners and smaller winners, as you would normally expect on an up day like today. This is all against the backdrop of the big question: will the Fed cut rates by 25 basis points or 50 when it meets on Wednesday?
Now, you know me, I try to refrain from this parlor game of guessing the Fed’s next move based on the strength of the economy. Last week, when *The Wall Street Journal* indicated the Fed may actually be leaning toward 50 basis points, we saw this great migration into cyclicals, especially anything related to housing. Of course, last week, there was just enough good news to propel the entire market, which is why it was the best week of the year.
This leads me to this newfound great divide between tech and non-tech, because that’s how this market seems to be trading. It’s a big reason why I’m out here in Silicon Valley this week. Today, we saw a market that doesn’t believe in AI, or tech in general for that matter. It’s a market that believes a 50-basis-point rate cut will shift money from semiconductors to housing and anything housing-related, and people want to get ahead of that.”
Jim Cramer’s Definition of ABT: “Anything But Tech”
Jim Cramer noted that Monday’s market saw a wide range of winners. Healthcare stocks, retailers, and consumer packaged goods companies all did well, and even oil stocks, which have been lagging, are rebounding. This is unusual because typically when cyclical stocks rise, sectors like healthcare and consumer products would drop. Cramer explains this trend as part of a broader market shift he calls “ABT,” or “anything but tech.” Essentially, today’s market is focusing on sectors outside of technology.
“Today, the winners broadened out. The healthcare stocks got jiggy, retailers worked, and consumer packaged goods companies outperformed. Even the much-maligned oils are rallying. It’s crazy—healthcare and consumer products should be selling off when cyclicals rally, but that’s not what’s happening because it’s *ABT*. No, I’m not talking about the symbol for Abbott Labs. ABT means “anything but tech,” and that’s what today’s market was about.
The implications are pretty stark, folks. Market commentators call this a rotation, but that understates what’s really happening here because the move is so vicious and devoid of realism. The market’s action is dictating what we do. For example, we know that the principal beneficiaries of rate cuts are the housing stocks, which rallied again today. This is the second day these stocks jumped as rates continue to plummet. But today, day two, was zero-sum.”
Tech stocks also experienced notable gains because of key events. For example, Larry Ellison from Oracle reported strong earnings and emphasized the need for many additional data centers.
Our Methodology
This article summarizes Jim Cramer’s latest Mad Money episode, where he discussed various stocks. We have selected the ten most notable companies he mentioned and ranked them based on their ownership levels by hedge funds, from the least owned to the most owned.
At Insider Monkey we are obsessed with 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 Investors: 279
Jim Cramer expressed enthusiasm about Microsoft Corporation (NASDAQ:MSFT), calling it one of the top five stocks in the market. He praised the viewer’s knowledge, saying that Microsoft Corporation (NASDAQ:MSFT) is a great choice.
“Oh my, let me tell you something! You’ve hit on one of the top five stocks in this entire market. I like Microsoft. The kid obviously knows what he’s doing! We should just put him right here—he can press the buttons for me. Maybe you can find him!”
Microsoft Corporation (NASDAQ:MSFT) is a strong investment due to its leadership in cloud computing and artificial intelligence, positioning it for ongoing growth. In 2024, Microsoft Corporation (NASDAQ:MSFT) reported impressive financial results, with a 20% increase in profits and a 17% rise in revenue to $61.9 billion in Q3, driven by a 31% growth in its Azure cloud platform.
Microsoft Corporation (NASDAQ:MSFT)’s substantial investments in AI, including its partnership with OpenAI, have bolstered its market position. Products like Microsoft 365 Copilot and Azure OpenAI services are expected to bring in billions in annual revenue. Analysts are positive about Microsoft Corporation (NASDAQ:MSFT)’s potential in generative AI, with price targets between $500 and $550.
Additionally, Microsoft Corporation (NASDAQ:MSFT) is expanding its global reach with a $2.9 billion investment in Japan to enhance its cloud and AI capabilities. Microsoft Corporation (NASDAQ:MSFT) also saw a 51% increase in gaming revenue, partly due to its Activision Blizzard acquisition, showcasing the strength of its diverse business segments. Microsoft Corporation (NASDAQ:MSFT)’s leadership in AI and cloud computing, along with strategic investments, makes it a top stock pick for 2024 and beyond, with considerable growth potential.
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.”
Overall MSFT ranks 1st on our list of Jim Cramer’s top stock picks. 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.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.