2. Micron Technology (NASDAQ:MU)
Number of Hedge Funds: 137
Micron Technology (NASDAQ:MU) is benefiting from surging demand for high-bandwidth memory (HBM), DRAM, and CPU-side memory systems driven by AI workloads. The stock is up 700% over the past year, but still trades at 11x forward P/E and a 0.07x PEG ratio.
Companies are lining up to buy from Micron. Why? Its high-bandwidth memory (HBM) is used in AI accelerators and GPUs. HBM offers much higher bandwidth than standard DRAM. Server DRAM (including LPDRAM) and high-capacity modules for data centers. Micron’s 2026 HBM production is sold out under binding long-term contracts with locked-in pricing and volumes. This gives unprecedented revenue visibility.
Micron Technology (NASDAQ:MU) is a confirmed supplier for NVIDIA’s Vera Rubin platform, specifically shipping high-volume HBM4 and SOCAMM2, while also ramping its advanced 1-gamma DRAM node, which is expected to become the majority of its DRAM bit mix by mid-2026.
Capex is expected to exceed $25B in 2026, signaling aggressive expansion but also creating a barrier to entry since advanced fabs cost $15B+ and take years to build.
Clearbridge Dividend Strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q1 2026 investor letter:
“In IT, we exited Oracle and trimmed Broadcom Inc. (NASDAQ:AVGO). On the semiconductor side, we modestly reduced our position in Broadcom to fund our new investment in Taiwan Semiconductor (TSMC). While Broadcom remains well positioned, and we remain constructive on the stock, the risk-reward outlook has diminished as the shares have tripled over the last two years. Further, whereas TSMC prospers regardless of who wins the semiconductor race (TSMC manufacturers chips for all the major semiconductor companies), one can conceive of scenarios where Broadcom could become less relevant in the future.”
1. Microsoft (NASDAQ:MSFT)
Number of Hedge Funds: 312
Microsoft reported strong earnings, but the stock wavered amid CapEx and AI-related concerns. CapEx guidance for the calendar year is about $190 billion, driven largely by AI infrastructure buildout. Around $25 billion of this increase is due to higher component costs, including memory and GPUs.
The market is not fully accounting for the fact that Microsoft’s CapEx is not coming at the expense of profitability. In the most recent quarter, operating margins stood at 46.3%, with operating income of $38.4 billion. Net income reached $31.8 billion, reflecting a 38.3% margin, while gross profit was $56.1 billion at a 67.6% margin. This shows the business remains highly profitable even during a heavy investment cycle.
Another concern weighing on sentiment is the idea that AI could eventually weaken Microsoft’s core software products. The argument suggests that if AI can perform tasks directly, the usage of tools like Excel or PowerPoint could decline. However, this view ignores Microsoft’s own AI adoption progress. Microsoft 365 Copilot paid seats have now surpassed 20 million, with seat growth up 250% year over year.
Nearly 90% of the Fortune 500 are building agents on Microsoft’s low-code stack. More than 10,000 companies are managing tens of millions of agents within Agent 365.
Aristotle Value Equity Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q1 2026 investor letter:
“Microsoft Corporation (NASDAQ:MSFT), the global leader in software and enterprise services, was the biggest detractor for the quarter. The decline was largely driven by a broad-based sell-off across software companies in early 2026 as investors weighed both the potential disruption from artificial intelligence and the near-term impact of elevated investment in AI infrastructure on margins and returns. Despite this, Microsoft delivered strong results, highlighted by continued strength in Azure, which grew 39% year over year, and ongoing demand across its cloud platform, where customer demand continues to exceed available capacity. We are also seeing increasing evidence of real-world adoption as Microsoft connects AI directly to systems of record and enterprise data—such as emails, documents and workflows—thereby embedding its tools more deeply into how organizations operate. While the recent sell-off reflects elevated uncertainty around the future of software, we view these concerns as overstated, particularly given Microsoft’s uniquely integrated ecosystem. With widespread adoption of offerings such as Microsoft 365 Copilot and GitHub Copilot, and supported by robust FREE cash flow that enables continued investment at scale, we believe Microsoft remains well-positioned to benefit from the ongoing migration of enterprise workloads to the cloud, with AI further enhancing the value of its platform over time.”
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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