Yahoo Finance Analyst Says Microsoft Corp (NASDAQ:MSFT) Has More Upside Even If AI Thesis Fails to Pan Out
We recently published a list of the 10 Biggest AI Stories and Ratings Updates You Should Not Miss This Week. Since Microsoft Corp (NASDAQ:MSFT) ranks 2nd on the list, it deserves a deeper look.
The Federal Reserve now expects just one rate cut in this year, and the market’s reaction to this development has been calmer-than-expected, showing investors are now paying little to no attention to what the Fed does and instead have their eyes focused on AI, which continues to push the markets higher. Tech companies, small and large, are continuing to roll out AI-focused products and solutions, while funds are pouring billions into AI. SoftBank has recently committed another $5 billion in AI investments for 5 companies ($1 billion each). A Wall Street Journal report cited SoftBank’s CFO, who said the bank’s chief Masayoshi Son was taking a “break from quarterly earnings meetings so he could focus on AI.”
In this backdrop it’s important to stay ahead of the curve and see what’s happening in the AI space.
In this article we will take a look at some of the biggest AI stock ratings updates and stories which can’t be missed. We focused on AI stocks that are popular among the smart money investors. 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).
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Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 293
Microsoft Corp (NASDAQ:MSFT) is one of the biggest and hottest AI stocks that recently received positive ratings from the Wall Street. New Street Research started covering the stock with a Buy rating. The firm said that Microsoft Corp (NASDAQ:MSFT) is well positioned to grow profit in the “low teens for years to come” even if the AI revolution fails to pan out. New Street Research has a $570 price target on Microsoft Corp (NASDAQ:MSFT).
Analysts believe Microsoft Corp’s (NASDAQ:MSFT) AI ecosystem around its products would strengthen its Cloud division thanks to Microsoft Corp’s (NASDAQ:MSFT) integration of AI into its Cloud products. Microsoft Corp’s (NASDAQ:MSFT) Intelligent Cloud segment’s profit in the latest quarter totaled $12.51 billion, a whopping 32% growth on a YoY basis.
Microsoft Corp’s (NASDAQ:MSFT) huge investments to revive its Search business are also working. Bing’s market share has jumped to 3.64% as of April 2024, a 0.88 points gain on a YoY basis.
Wall Street expects Microsoft Corp’s (NASDAQ:MSFT) earnings to grow 12.50% next year. The stock’s forward P/E of 31 based on 2025 EPS makes it look attractive at the current levels. Average analyst estimate for Microsoft Corp (NASDAQ:MSFT) is $483, which presents a 14% upside potential from the current levels.
Baron Fifth Avenue Growth Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its first quarter 2024 investor letter:
“Our second largest purchase during the quarter was the software platform, Microsoft Corporation (NASDAQ:MSFT), which we continued to add to, after initiating a position in the fourth quarter of 2023. Microsoft continues to report strong quarterly results, with revenue growth of 16% year-over-year in constant currency thanks to better-than-expected demand in its intelligent cloud segment, which saw revenue growth of 19% year-over-year, driven by Azure growth of 28% with AI contributing 6pts to growth compared with 3pts in the prior quarter. While the adoption of GenAI remains in its early stages, Microsoft has disclosed positive initial data points with 53,000 Azure AI customers as of its December quarter up from 18,000 in the prior quarter, 1.3 million paid GitHub Copilot subscribers (up 30% sequentially) and more than 230,000 organizations who have used AI capabilities in the power platform (up 80% sequentially). Management also noted that large cloud optimizations that started a year or so ago have largely finished. Profitability also continues to be strong with 44% non-GAAP operating margins, which was 120bps better than expected.”
Overall, Microsoft Corp (NASDAQ:MSFT) ranks 2nd on Insider Monkey’s list titled 10 Biggest AI Stories and Ratings Updates You Should Not Miss This Week. While we acknowledge the 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.
