10 Best Machine Learning Stocks to Buy Now

2. Microsoft Corp. (NASDAQ:MSFT)

Number of Hedge Fund Holders: 317

Microsoft Corp. (NASDAQ:MSFT) develops and supports global software, services, devices and solutions. Its segments include Productivity and Business Processes, Intelligent Cloud, and More Personal Computing which sell products through OEMs, distributors, and resellers. The company integrates machine learning into its Azure cloud services and also uses it to enhance Windows and Office products.

The company’s segment for offering server products and cloud services is referred to as Intelligent Cloud and is mostly driven by Azure. It achieved a revenue of $25.5 billion in FQ2 2024, which marked a 19% year-over-year improvement that came from rapidly expanding AI services. AI services revenue alone rose by 157% in this quarter. The company has more than doubled its data center capacity in the past 3 years. Last year saw the highest expansions and helped support the company’s current cloud workloads along with next-gen AI applications.

Jefferies analyst Brent Thill lowered the company’s price target to $500 from $550 while maintaining a buy rating. This adjustment was a result of the overall software sector sentiment. Microsoft Corp. (NASDAQ:MSFT) has a strong AI strategy and is integrating AI into Azure and the Microsoft 365 Commercial Cloud. This will give Azure a competitive advantage and drive higher adoption of M365.

Generation Global Equity Strategy expressed long-term confidence in the company and stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q4 2024 investor letter, due to its AI leadership potential:

“Microsoft Corporation (NASDAQ:MSFT), the world’s largest software company, has been in the portfolio for over a decade. We like the firm because its products align closely with society’s evolving needs. As the world digitises, demand for Microsoft’s tools will continue to grow. The company enjoys a wide economic moat – built on its unique market position, deep customer understanding and extensive global footprint.

Microsoft’s management team has a long-term vision. It makes bold investments in future growth, most recently in AI. We forecast that the IT intensity of the economy will double over the next 15 years. Microsoft is a rare company with USD 250 billion in revenues, projected to grow at 16% annually over the next five years.14 Earnings-per share could grow faster. Despite its near-term valuation appearing high, we believe Microsoft is well positioned to lead in the AI era, potentially doubling or tripling its market share. Additionally, we expect returns on capital (ROC) for its AI related investments to match historical levels, despite market scepticism.

There are risks. Demand for AI systems may not materialise as expected, and increasing pricing power among suppliers like Nvidia could pressure margins. Still, from our analysis we see substantial long-term value in this name.”