We recently published a list of Top 10 AI Stocks That Should Be On Your Watchlist for 2025. In this article, we are going to take a look at where Microsoft Corp (NASDAQ:MSFT) stands against other top AI stocks that should be On your watchlist for 2025.
Investors are looking for new growth horizons in the AI industry to gauge whether the current market rally can continue for the years to come. Chetan Puttagunta, Benchmark general partner, said he’s noticed a lot of innovation in the past few weeks focused on improving the efficiency of algorithms.
“In the last six to eight weeks, we’ve seen a tremendous amount of innovation, especially at the model layer, and then for the last two years at the application layer, taking advantage of all the advances in the AI models. Specifically, what’s happening at the model layer is, as we move into an inference-time or test-time compute paradigm, you’re seeing a lot more advantage to entrepreneurs and technical founders that are able to push to the frontier with algorithmic innovation.”
To explain how AI is now actually improving workflows, Puttagunta gave the example of Sierra, a conversational AI startup making customer service solutions.
“So think of this Sierra AI agent, if you will, delivering the best customer service agent experience every time, replicated an infinite number of times. And that’s an experience that was previously not possible without AI.”
READ ALSO 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In
For this article, we picked 10 AI stocks that are making moves amid the latest news. With each stock, we have mentioned its 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).
Pieter Beens / Shutterstock.com
Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 279
Francisco Bido, Senior Vice President and Senior Portfolio Manager at F/m Acceleration, LLC, said in a recent program on Schwab Network that Microsoft Corp (NASDAQ:MSFT) needs a catalyst for further growth.
“Microsoft Corp (NASDAQ:MSFT) is a little bit, in my opinion, a little bit of a—they have a disadvantage. They have to come up with some kind of catalyst. I know that they have Co-Pilot, and they invest heavily in ChatGPT and so on, but they need to come up with something that really adds value to their line.
You know, I’ve heard, for example, of some overlay that they do on their software products. For example, if you’re working on a spreadsheet, it’ll do an overlay and indicate with little pointers and arrows what to do, perhaps do a formula that you never tried before—things of that nature. They have to figure out how to monetize that and add to their top line.
If they do that, maybe, you know, that’s a little bit of a catalyst. They’re a little bit, in terms of their price valuation, a little bit close to fairly priced.”
RiverPark Large Growth Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q3 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT): MSFT was a top detractor in the third quarter following a fiscal fourth quarter earnings report that featured inline operating metrics but mixed guidance. Positively, the company reported strong revenue (+15%) and earnings growth (+10%), powered by Azure (+30%), and operating margins of 43%. Guidance however calls for lower than expected fiscal first quarter Azure revenue as infrastructure constraints limit growth, and higher capital expenditures throughout the company’s fiscal 2025 to alleviate these constraints. The company expects growth to reaccelerate in the back half of fiscal 2025 as more AI capacity comes online.
Cloud-based services have become the company’s largest revenue and earnings producer. The company’s Azure platform alone has the potential to grow to more than $200 billion in annual revenue over the next decade. Overall, we believe that the company will continue to deliver double-digit revenue and EPS growth and generate an enormous amount of free cash flow to return to shareholders and use for acquisitions.”
Overall, MSFT ranks 2nd on our list of top AI stocks that should be On your watchlist for 2025. 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.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock
Disclosure: None. This article is originally published at Insider Monkey.
Hedge Fund Resource Center