The dissolution of Leopold Aschenbrenner’s Situational Awareness hedge fund is proving to be a positive in hindsight for some Wall Street investors.
Dan Niles, founder and portfolio manager at Niles Investment Management, said on a recent CNBC program that the fund’s exit removed a key overhang he had been tracking. He is now favoring infrastructure players over AI model makers. During the program, he expressed his bullish thoughts on Microsoft (NASDAQ:MSFT).
“The Situational Awareness, you know, getting taken out their public positions. That was a huge deal that kind of solved my issues with the speed bump, which I saw coming.”
Niles had been talking about a potential AI pullback. But many believe the Situational Awareness takeout removes this overhang. How? Once the leveraged fund exited, there was no one left to trigger a bigger crash later.
On Microsoft (NASDAQ:MSFT) specifically, Niles highlighted Azure’s numbers as proof the infrastructure layer is holding up. He highlighted that Azure’s growth rate accelerated by about 4 percentage points to 43% in the recent quarter, with margins improving.
Microsoft recently posted strong quarterly results with about 18% year-over-year revenue growth. Azure rose 43%, beating the company’s own guidance.
Microsoft’s commercial remaining performance obligations, a measure of future contracted revenue, grew 84% year over year. Analysts flagged that even excluding OpenAI, bookings still grew 18%, showing demand isn’t riding on one customer. Nearly 90% of Microsoft’s full-year cloud revenue came from customers outside frontier AI model companies, easing concerns the business leans too heavily on OpenAI.
Management guided for Azure growth to accelerate further, to around 45%, in the fiscal first quarter of 2027.
Photo by Chris Liverani on Unsplash
Risks
Microsoft’s spending on AI infrastructure remains heavy, and free cash flow fell as a result. Management guided operating margins down by about a point for fiscal 2027 due to rising costs. The company recently extended the useful life of its data centers from 15 to 25 years, a change that lowered its official capex guidance without cutting actual spending, something analysts warn investors may be misreading as a slowdown.
Competition in the Cloud domain is intensifying too. Google Cloud has closed the gap with Azure, helped by its own custom AI chips, something Microsoft doesn’t have. And with OpenAI still tied to a large share of Microsoft’s revenue backlog, any stumble at OpenAI, or a slowdown in enterprise AI demand more broadly, remains a real risk for the stock.
While we acknowledge the risk and potential of MSFT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MSFT and that has 10,000% upside potential, check out our report about the cheapest AI stock.
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