1. Microsoft (NASDAQ:MSFT)
Number of Hedge Fund Investors: 282
Microsoft (NASDAQ:MSFT) is down 22 percent year-to-date, and Redditors believe now is the time to buy the stock instead of chasing hype like SpaceX.
Bulls point to Microsoft’s latest agreement revisions with OpenAI announced in April 2026, after which Microsoft will no longer be obligated to pay 20 percent of Azure OpenAI Service and Bing revenue to OpenAI. This change will improve Microsoft’s gross margins from 76.11 percent in 2026 to 82.35 percent. But the investment case is not just about OpenAI. Microsoft (NASDAQ:MSFT) is a strong cloud and AI play independent of that relationship. In fiscal Q3 2026, Azure revenue rose 40 percent year-over-year, marking the fourth consecutive quarter of 40 percent plus growth. Azure OpenAI enterprise customers rose 63 percent year-over-year from 49,000 in FY2024 to 80,000 in FY2025.
The market share gap between Azure and AWS has been declining from 23 percentage points in 2021 to just 9 percentage points in fiscal Q3 2026 year-to-date. Enterprise customer concentration remains a key advantage for Microsoft. Enterprise customers spending over 1.2 million dollars annually represent 5 percent of Azure’s customer base compared to just 2.3 percent for AWS. Microsoft (NASDAQ:MSFT) plans to increase its data center supply capacity by 80 percent in fiscal 2026 and double the number of data centers over the next two years. Copilot paid seats rose 250 percent year-over-year to 20 million paid seats in Q3 FY2026, representing the fastest growth rate for any Microsoft software suite since launch. At an annual price of $360 per user, Copilot generates approximately 7.2 billion dollars in annualized revenue.
Aoris Investment Management stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q1 2026 investor letter:
“The startling pace of advancement in AI tools over the last year is extremely impressive but has also unnerved many investors. The key concerns are what these tools will be capable of a few months, a year, or five years from now, and what that means for incumbent software, data and services businesses. Will AI displace white-collar workers, shrinking their client base? Will it make software free? Will data become a commodity?
Such reservations contributed to sharp share price declines over the quarter for five businesses in our portfolio – Microsoft Corporation (NASDAQ:MSFT) and SAP (enterprise software), Experian and RELX (data), and Accenture (professional services). These declines collectively had a negative impact on performance of 9.4%. I should note that these businesses were also major contributors to the Fund’s underperformance last year due to the same underlying investor concerns.
Microsoft recognised that as the world becomes more digital, and data moves to the cloud, cybersecurity risks rise dramatically. It has adapted to this growing need and is now the world’s leading provider of cybersecurity software. We are confident that our five portfolio holdings will continue to adapt, using AI to meet the evolving needs of their customers, as well as making their own operations more efficient. …” (Click here to read the full text)
While we acknowledge the potential of MSFT to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than MSFT and that has 100x upside potential, check out our report about the cheapest AI stock.
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