We recently compiled a list of the 10 Most Widely Held Stocks by Hedge Funds. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against the other widely held stocks.
Two 25 Point Cuts May be the Most Likely Outcome
The last trading day of September is upon us and so are many questions about the market. On September 30, Dana D’Auria, Envestnet Solutions co-CIO and group president, appeared in an interview on Yahoo Finance to discuss the financial market.
D’Auria regards employment data to be a major concern at the moment. Since inflation rates are subsiding, employment data is something investors should be on the lookout for, along with other data points including GDP and consumer confidence. She suggests that to ensure a soft landing, the Fed must initiate larger rate cuts, and that recessionary conditions are out of the picture.
September is notoriously volatile along with October, and, with elections in another 35 days, the conditions may be slightly different or even more turbulent. According to D’Auria, the 50 basis point cut is a catch-up for July, and expecting a 50 basis point cut in November is borderline questionable.
Overall, she believes that the market has been overshooting and we may have to settle for two 25 basis point cuts before the end of 2024. She reiterates that the job market is crucial and investors must get out of their comfort zone to invest in non-cash opportunities. Investors concerned about low-risk options may consider equities in the defensive sectors that are innately low volatile.
The Market is Broadening
Wall Street is heading to close September and Q3 on a high note and stocks have experienced their best September in over a decade. On September 30, Kevin Gordon, harles Schwab’s Director and Senior Investment Strategist, appeared in an interview on Yahoo Finance to discuss his market thesis.
Gordon believes that stocks in the utilities and defensive sectors have caught up to tech stocks amid the AI boom, compared to their financials at the end of FY 2023. However, he does acknowledge that sectors like industrials, financials, and materials are performing relatively well, calling it a case of market broadening.
In terms of market breadth, most sectors are experiencing an upward trajectory. Almost 81% of the S&P 500 members are experiencing an uptrend, despite the quality bias investors may have towards certain stocks. According to Gordon, large-cap quality stocks will continue to perform well despite the volatility and the Fed’s decisions. Speaking of smaller-cap stocks, he believes that some stocks may struggle a bit especially when it comes to earnings growth.
Our Methodology
To come up with the 10 most widely held stocks by hedge funds, we sifted through Insider Monkey’s database that tracks over 900 hedge funds, as of Q2 2024. We ranked the top 10 stocks that were the most widely held by hedge funds in ascending order of their hedge fund sentiment.
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 one of the biggest technology companies in the world that develops productivity and business suite applications, cloud products, and personal computing products.
Microsoft Corporation (NASDAQ:MSFT) reported revenue worth $64.7 billion in FQ4 2024, up by 15% year-over-year. During the same quarter, Microsoft Cloud had $36.8 billion in quarterly revenue, up by 21%. Its productivity/business processes and intelligent cloud segment, on the other hand, logged revenue worth $20.3 billion and $28.5 billion respectively.
The company is a leading investor in artificial intelligence technology. In July, Microsoft and Lumen Technologies partnered to enhance and modernize Lumen’s workloads to Microsoft Azure. Earlier in August, Microsoft Corporation (NASDAQ:MSFT) partnered with Palantir Technologies, a data software company, to deploy its suite of products in Microsoft Azure.
The company’s partnerships do not end here. BlackRock, Global Infrastructure Partners, Microsoft, and MGX recently made a $100 billion deal to enhance the functioning of data centers and AI. The company is also expanding its footprint by establishing engineering development centers in Abu Dhabi, UAE. In addition to that, on September 28, Microsoft (NASDAQ:MSFT) partnered with KT Corporation to accelerate its presence in AI. The five-year partnership with help more than 650,000 businesses and 17 million consumers become a part of the AI wave.
Overall, Microsoft Corporation’s (NASDAQ:MSFT) financial strength coupled with its strategic partnerships make it one of the most widely held stocks by hedge funds. In the second quarter, 279 hedge funds held positions in Microsoft (NASDAQ:MSFT) and their stakes amounted to $89.07 billion.
Fred Alger Management’s 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 2nd on our list of the most widely held stocks by hedge funds. 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 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.