We recently published a list of Top 10 AI Stocks on Investors’ Radar These Days. In this article, we are going to take a look at where Microsoft Corp (NASDAQ:MSFT) stands against other top AI stocks on investors’ radar these days.
The debate around AI systems hitting a “data wall” or plateau is heating up in the tech industry with many arguing that the performance of AI models is not showing signs of further improvement amid a lack of quality inputs, causing scaling issues in the industry.
CNBC’s Deirdre Bosa recently discussed this debate in a program and said:
“All it feels like anyone is talking about right now in tech is this debate over scaling laws and a data wall, which continues to rage in Silicon Valley. This is the idea that more data and bigger models will always lead to better AI, with some arguing that progress has peaked or is starting to plateau. Put another way, it’s a debate over a core assumption in AI that could have massive implications for the industry, from valuations to the GPUs powering it, and of course, the Nvidia story. I was at the Newcomer AI conference yesterday here in San Francisco. It was the theme of the day, with everyone from Scale AI’s Alexander Wang to Anthropic’s Dario Amodei to Databricks’ Ali Ghodsi weighing in.”
Jensen Huang was also asked about the issue of AI systems hitting a data wall and possible scaling issues in a latest earnings call. Here is what he said:
“A foundation model pre-training scaling is intact and it’s continuing. As you know, this is an empirical law, not a fundamental physical law, but the evidence is that it continues to scale. What we’re learning, however, is that it’s not enough that we’ve now discovered two other ways to scale. One is post-training scaling. Of course, the first generation of post-training was reinforcement learning human feedback, but now we have reinforcement learning AI feedback and all forms of synthetic data generated data that assists in post-training scaling.”
Read Huang’s comments in detail here.
Bosa mentioned some other tech leaders pushing back against the idea of AI hitting a data wall and said:
“…..also acknowledge that this alone isn’t enough to push AI further, and progress will come from post-training scaling, which is the development of AI applications on top of existing models. He and others say this will still require massive amounts of compute power.
An open question remains: will it be as much? A helpful way to frame that next phase of AI development is digestion or innovation. Maybe both are possible, but digestion might suggest a pullback on the huge amounts of spending and capital expenditures we’ve seen over the last few years. Innovation, on the other hand, could mean doubling down, with just another phase of development beginning. It’s still very much an open question.”
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Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 279
Barclays recently highlighted what Microsoft Corp (NASDAQ:MSFT) could gain in the search market in certain scenarios of the outcome of the DoJ’s case against Google.
“With Bing being a small part of the Microsoft top-line (5% of total revenue in FY24), the ramifications of any developments here seem to have been largely ignored based on our investor discussions, particularly with many software investors not having the context of the ongoing trial,” analyst Raimo Lenschow wrote in a note to clients. “However, following the Department of Justice’s long-awaited Proposed Final Judgment, we think that Microsoft investors should pay closer attention to any final rulings that come from the case.”
Lenschow, who has an Overweight rating and a $475 price target on Microsoft Corp (NASDAQ:MSFT), noted that if the remedies include ending revenue-sharing agreements between Google and other parties, or if Google starts syndicating its search offering, Bing could gain market share. This might force Google to make some of its technology stack available to partners and offer search text ads for one year to U.S. partners while keeping just 10% of gross revenue.
“In tandem with this, Google is only allowed to syndicate 25% of search text ads, meaning that partners (like an Apple) would need to backfill their remaining search ads either through their own tech stack or through a new partner like Bing,” Lenschow added. “This, in theory, would open up a unique opportunity for Microsoft to capture share for a period of time.”
Alger Spectra Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q3 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 detracted from performance after Microsoft reported weaker-than-expected fiscal fourth-quarter revenue growth in its Azure cloud segment. Additionally, management’s fiscal first[1]quarter 2025 Azure revenue guidance came in slightly below estimates. Despite this shortfall, management highlighted that AI contributed 7% to cloud growth, up from 6% last quarter and 3% a year ago. We continue to believe that Microsoft is well-positioned to maintain a leadership role in AI, given its innovative approach and significant growth potential.”
Overall, MSFT ranks 1st on our list of top AI stocks on investors’ radar these days. While we acknowledge the potential of MSFT, 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.
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Disclosure: None. This article is originally published at Insider Monkey.