We recently compiled a list of the 10 Most Owned Stocks by Hedge Funds Right Now. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against the other stocks owned by hedge funds.
Wall Street stocks surged this month after the Federal Reserve released minutes of its September meeting, which resulted in the first interest rate cuts in over four years. The details disclosed a ‘substantial majority’ of central bankers backing the 0.5 percentage-point cut, raising optimism among investors for further cuts ahead.
The broader market hit record highs on October 11, driven by several financial stocks reporting stronger-than-expected results during the recently concluded quarter. Another factor encouraging investors has been the downturn in US inflation, which fell to 2.4% in September and is inching toward the Federal Reserve’s goal of a two percent annual rate. This has raised hopes of a quarter-point cut in the central bank’s next meeting in November.
However, some analysts warn against diving into stocks after interest rate cuts, citing uncertainty around the upcoming presidential elections. Liz Young Thomas, the head of investment strategy at SoFi, while talking to Business Insider in early September discussed historic patterns in US markets towards the end of the third quarter and the beginning of the fourth.
She noted how the market performs well between June and August due to thinner volumes when traders are on vacation, while volatility picks up with an uptick in activity after they return to their desks in September. However, during the election year, this volatility peaks around mid-October, instead of September, according to Young Thomas.
Fundstrat Global Advisors’ co-founder, Tom Lee, has also cautioned investors against election-related uncertainty. Here is what he stated in an interview with CNBC late last month:
This Fed cut cycle I think is setting the stage for markets to be really strong over the next one month or next three months. But, what the stocks do between now and let’s say election day, I think is still a lot of uncertainty. And that’s the reason why I’m a little hesitant for investors to dive in.
Earlier that month in the weeks leading to the interest rate cuts, Lee, who is generally bullish on the stock market, forecasted a 7-10% dip between September and October amid nervousness around the presidential elections. However, Lee urged investors to ‘buy the dip’, indicating that he sees the likely fall as an opportunity to buy stocks while they trade for a lower value.
Adam Turnquist from LPL Financial also anticipates seasonal volatility in the weeks ahead but reiterated what Lee did, that the dip presents an opportunity to buy when the share is trading low and earn high returns when the market stabilizes. Turnquist advises investors not to readjust their existing portfolios because seasonal volatility has short-term effects and is difficult to forecast.
With that said, let’s now shift focus to hedge fund sentiment on the stock market and discuss some of the most widely held stocks by hedge funds.
Methodology
We scanned Insider Monkey’s database of 912 hedge funds for the second quarter of 2024 and picked the top 10 companies with the highest number of hedge funds having stakes in them. We ranked them in ascending order of hedge fund holders in each company.
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 an American technology company, best known for its operating systems and software products. It is the second most valuable company in the world after having tripled its valuation over the last three years to reach the $3 trillion mark.
The company continues to garner investors’ confidence through increased spending on artificial intelligence and cloud infrastructure. Microsoft spent $19 billion on capital expenditure during its fourth quarter of FY 2024, which ended in June. This was a 35% increase in spending from the March quarter. Here is what Mar Vista Focus stated regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
Microsoft Corporation (NASDAQ:MSFT) continues to occupy a strong position, poised to capture market share as businesses, both large and small, navigate the transition to a digital-first landscape and embrace generative AI-driven solutions. The company’s commanding presence in the enterprise arena, combined with its comprehensive product portfolio encompassing Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS), establishes it as a crucial provider of IT solutions for companies of all scales. Microsoft is effectively executing its strategy in a sizable market by offering a roadmap for digital transformation and the adoption of innovative, AI-driven solutions, such as ChatGPT while enhancing productivity and reducing costs. Consequently, we anticipate that Microsoft’s solutions should exhibit resilience even in a more challenging macroeconomic environment, supporting low-double-digit growth in intrinsic value within our investment horizon.
The company also reported robust financial results during Q4 2024, with quarterly revenue recorded at $64.7 billion. This took the total annual revenue figure to $245 billion, representing a 15% increase from 2023. EPS for the quarter surged 10% year-over-year to reach $2.95 per share, beating analysts’ expectations of $2.94.
The strong performance was largely attributed to Microsoft Cloud, which generated $36.8 billion in quarterly revenue, and a 17% increase in commercial bookings, driven by millions of dollars of contracts for both Microsoft 365 and Azure. Heading into FY 2025, the company expects current encouraging trends to continue and has forecasted double-digit growth for both revenue and operating income for the year.
There were some segments where numbers declined for Microsoft during the quarter, such as Xbox hardware sales experiencing a 42% dip and devices revenue decreasing 11%. Despite that, the overall outlook for the company looks promising. Street analysts have consensus on the stock’s Strong Buy rating and anticipate a share price upside of 18% in the coming months.
Moreover, according to Insider Monkey’s database for Q2, 279 hedge funds had investments in the company, making it one of the most owned stocks by hedge funds right now.
Overall MSFT ranks 2nd on our list of the most owned stocks by hedge funds right now. 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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Disclosure: None. This article is originally published at Insider Monkey.