Hedge Funds are Selling Microsoft (MSFT) and Buying These 10 Tech Stocks Instead

In this article, we discuss the 10 tech stocks hedge funds are buying instead of Microsoft. If you want to skip our detailed analysis of these stocks, go directly to Hedge Funds are Selling Microsoft and Buying These 5 Tech Stocks Instead.

Microsoft Corporation (NASDAQ:MSFT) crossed $2 trillion in market capitalization in late June this year, becoming the second company on the S&P 500 to achieve that milestone. The five top firms on the benchmark index, all from the technology industry, now comprise over 20% of the value of the whole index. Coupled with the incredible rally in the share prices of growth stocks over the past year and a half – the NASDAQ Composite has a one-year return of 40% – this has led to several theories about a tech bubble that is primed to explode over the marketplace. 

It would appear that hedge funds have also given heed to these theories. At the end of the second quarter of 2021, 238 hedge funds tracked by Insider Monkey held stakes worth more than $62 billion in Microsoft Corporation (NASDAQ:MSFT), down from 251 funds in the preceding quarter with stakes worth over $58 billion. Two top hedge funds, Chicago-based Citadel Investment Group and New York-based Millennium Management, own PUT options against 10.5 million and 8.9 million shares of the firm respectively, worth $5.2 billion.

Some of the technology stocks that hedge funds are buying instead of Microsoft Corporation (NASDAQ:MSFT) include Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Apple Inc. (NASDAQ: AAPL), among others discussed in detail below. According to Jeff Mills, the Chief Investment Officer at Bryn Mawr Trust, increased taxes and tightening regulation around big tech firms like Microsoft are likely to lead to the end of the dominance of these firms atop the S&P 500. 

The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Hedge Funds are Selling Microsoft and Buying These 10 Tech Stocks Instead

Image by Tawanda Razika from Pixabay

 

Our Methodology

With this context in mind, here is our list of the 10 tech stocks hedge funds are buying instead of Microsoft Corporation (NASDAQ:MSFT). Only those firms that work in the technology industry and have seen an increase in the number of hedge funds having stakes in the second quarter of 2021, as compared to the first quarter, were selected for the listing.

The list is ranked according to the number of hedge funds having stakes in each company. Data from the 873 funds tracked by Insider Monkey was used for this purpose. 

Special importance was assigned to outlining the analyst ratings and business fundamentals for each firm to provide readers with some context so they can make more informed investment choices. 

Hedge Funds are Selling Microsoft and Buying These Tech Stocks Instead

10. Workday, Inc. (NASDAQ:WDAY)

 

Number of Hedge Fund Holders in Q2: 72  

 

Number of Hedge Fund Holders in Q1: 69  

Workday, Inc. (NASDAQ:WDAY) is placed tenth on our list of 10 tech stocks hedge funds are buying instead of Microsoft Corporation (NASDAQ:MSFT). The firm markets enterprise cloud applications and is headquartered in California. 

On September 22, investment advisory Needham maintained a Buy rating on Workday, Inc. (NASDAQ:WDAY) stock and raised the price target to $310 from $290, noting that the firm had the potential to re-accelerate growth as it exits the pandemic economy. 

At the end of the second quarter of 2021, 72 hedge funds in the database of Insider Monkey held stakes worth $5.18 billion in Workday, Inc. (NASDAQ:WDAY), up from 69 in the previous quarter worth $5.17 billion.

Just like Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Apple Inc. (NASDAQ:AAPL), Workday, Inc. (NASDAQ:WDAY) is one of the tech stocks attracting the attention of elite hedge funds.

In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Workday, Inc. (NASDAQ:WDAY) was one of them. Here is what the fund said:

“In addition to the new issue market, we have been tactically adding growth exposure. We took advantage of the selloff in disruptors that comprise a large portion of the portfolio to initiate a position in enterprise software maker Workday.”

9. JD.com, Inc. (NASDAQ:JD)

 

Number of Hedge Fund Holders in Q2: 76  

 

Number of Hedge Fund Holders in Q1: 75  

JD.com, Inc. (NASDAQ:JD) is ranked ninth on our list of 10 tech stocks hedge funds are buying instead of Microsoft Corporation (NASDAQ:MSFT). The firm operates as an ecommerce and retail infrastructure provider. It is headquartered in China. 

On September 15, investment advisory Stifel reiterated a Buy rating on JD.com, Inc. (NASDAQ:JD) stock and raised the price target to $100 from $90, noting the firm was less exposed to regulatory risk in China than peers. 

Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Tiger Global Management LLC  is a leading shareholder in JD.com, Inc. (NASDAQ:JD) with 51.5 million shares worth more than $4.1 billion. 

In addition to Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Apple Inc. (NASDAQ:AAPL), JD.com, Inc. (NASDAQ:JD) is one of the tech stocks that hedge funds are piling into.

In its Q1 2021 investor letter, Arisaig Partners, an asset management firm, highlighted a few stocks and JD.com, Inc. (NASDAQ: JD) was one of them. Here is what the fund said:

“Our largest holding as a firm, JD.com, we expect to grow earnings at an annualised rate of 30% over the next five years, implying it will trade on an EV / EBITDA of 7.5x at the end of this period. Is this a growth stock or a value stock? Does anyone care? Do these labels really matter?

For the Asia Fund, with a higher pre-existing allocation to our core FMCG holdings coming into the year, we took advantage of capital market volatility to further concentrate on our highest conviction names. JD.com has been the main destination for our limited reallocations as evidence continues to emerge supporting our thesis that the company has a strong right-to-win in the large and highly fragmented USD1.8th Chinese grocery market. We have also been encouraged by the fact that after years of persistence, the company is beginning to engage with us on ESG issues (we have specifically discussed data protection, climate change and the circular economy). ESG is now being considered at the board level, and specific sustainability reporting should follow in the coming months. Having long displayed a healthy obsession with customer service, we interpret these latest conversations as a sign that JD is beginning to develop a more sophisticated understanding of its impact on all stakeholders.”

8. Thermo Fisher Scientific Inc. (NYSE:TMO)

 

Number of Hedge Fund Holders in Q2: 87  

 

Number of Hedge Fund Holders in Q1: 79  

Thermo Fisher Scientific Inc. (NYSE:TMO) is a Waltham-based company that has interests in the life sciences tools and services business. It is placed eighth on our list of 10 tech stocks hedge funds are buying instead of Microsoft Corporation (NASDAQ:MSFT).

On September 23, investment advisory Goldman Sachs upgraded Thermo Fisher Scientific Inc. (NYSE:TMO) stock to Conviction Buy from Buy and raised the price target to $690 from $600, noting that the firm would hit single-digit growth and was experiencing multiple growth drivers.

At the end of the second quarter of 2021, 87 hedge funds in the database of Insider Monkey held stakes worth $7.3 billion in Thermo Fisher Scientific Inc. (NYSE:TMO), up from 79 in the preceding quarter worth $6.2 billion. 

Along with Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Apple Inc. (NASDAQ:AAPL), Thermo Fisher Scientific Inc. (NYSE:TMO) is one of the tech stocks that hedge funds are bullish on.

In its Q2 2021 investor letter, DEVON Equity Management, an asset management firm, highlighted a few stocks and Thermo Fisher Scientific Inc. (NYSE:TMO) was one of them. Here is what the fund said:

“The broad response to the COVID pandemic from the healthcare, pharmaceutical, and life science industries has been nothing short of incredible.

Whilst Vaccine makers understandably garner the highest profile, Thermo Fisher (6.2% of NAV) should be considered one of the outstanding performers, reflected in their ‘COVID related revenue’ hitting US$9.4bn in the 12 months since March 2020 (we appreciate measuring ‘contribution’ to the pandemic by ‘dollars’ generated is a little crude – but ultimately it does tell us something).

Ever the short-termist, Mr Market has looked to the inevitable slowdown in COVID related revenue uneasily – questioning whether it might mean a decline in Earnings come 2022. These concerns resulted in TMO shares declining 5% since their November 2020 peak, the worst performer of our Top 10 holdings.

Fortunately, we look at the COVID dynamic for Thermo in the diametrically opposite fashion.

We think Thermo’s response to COVID has bolstered their competitive positon in multiple verticals, and meaningfully enhanced the long term earnings potential of the company:

Firstly, Thermo came from ‘also-ran’ to leading player in diagnostic testing in 6 months. In ordinary times, this might be expected to take 5+ years. As demand for COVID testing inevitably declines, the capacity Thermo built during 2020 will be filled with demand from non-COVID diagnostic tests, a fast growing area before the pandemic with improved prospects in light of the role testing is playing in the COVID response.

Secondly, Thermo invested heavily throughout 2020 in capacity for the core bioreactor business. Given our constructive view on biologics manufacturing (both volume and value), these investments should translate into sustainably higher market share.

Thirdly, we expect the..”read the entire letter here]

7. Square, Inc. (NYSE:SQ)

 

Number of Hedge Fund Holders in Q2: 94  

 

Number of Hedge Fund Holders in Q1: 92  

Square, Inc. (NYSE:SQ) is a California-based technology company that markets payments services. It is ranked seventh on our list of 10 tech stocks hedge funds are buying instead of Microsoft Corporation (NASDAQ:MSFT).

On September 15, investment advisory Evercore ISI maintained an Outperform rating on Square, Inc. (NYSE:SQ) stock and raised the price target to $371 from $361, underlining the stronger growth profile of the firm after recent acquisitions. 

At the end of the second quarter of 2021, 94 hedge funds in the database of Insider Monkey held stakes worth $10 billion in Square, Inc. (NYSE:SQ), up from 92 the preceding quarter worth $9 billion.

Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Apple Inc. (NASDAQ:AAPL) are some of the top tech stocks to buy right now, just like Square, Inc. (NYSE:SQ).

6. Sea Limited (NYSE:SE)

 

Number of Hedge Fund Holders in Q2: 104  

 

Number of Hedge Fund Holders in Q1: 98  

Sea Limited (NYSE:SE) is placed sixth on our list of 10 tech stocks hedge funds are buying instead of Microsoft Corporation (NASDAQ:MSFT). The firm has interests in the digital ecommerce, entertainment, and financial technology businesses. It is headquartered in Singapore. 

On August 18, investment advisory Cowen maintained an Outperform rating on Sea Limited (NYSE:SE) stock and raised the price target to $355 from $345, noting that the topline growth of the firm was continuing in tandem with long-term investments. 

At the end of the second quarter of 2021, 104 hedge funds in the database of Insider Monkey held stakes worth $12.2 billion in Sea Limited (NYSE:SE), up from 98 the preceding quarter worth $10.4 billion.

Amazon.com, Inc. (NASDAQ:AMZN), Facebook, Inc. (NASDAQ:FB), and Apple Inc. (NASDAQ:AAPL) are some of the biggest tech stocks to buy right now, alongside Sea Limited (NYSE:SE).

In its Q4 2020 investor letter, Hayden Capital, an asset management firm, highlighted a few stocks and Sea Limited (NYSE:SE) was one of them. Here is what the fund said:

“Sea Ltd (SE): When I wrote our Q4 2019 letter about Shopee launching a Brazilian business, it seemed very few investors or competitors knew or cared.

A year ago, I wrote: “This is the first test for the ecommerce marketplace outside of its Southeast Asia home base. Will the platform’s fun and addicting features overcome a lack of local knowledge and presence? It’s hard to predict consumer behavior and how accepting users will be to a platform – especially one that’s a foreign culture and 10,000 miles away. The only way to know is to experiment and watch the results closely.

Empirically though, it seems that what consumers find entertaining in Asia, generally translates well to Brazil (and Shopee really is as much an entertainment platform, as an ecommerce one).

For example, just look at the top 10 free apps in Brazil. Two are utility messaging apps, so we’ll ignore those (WhatsApp and

Facebook Messenger). But among the remaining eight apps, they’re all entertainment based and overwhelmingly Asian. Four are from China (Kwai, TikTok, VStatus, TikTok Lite), two from Singapore (Free Fire and Shopee, both Sea Ltd apps), and one from the US (Instagram). The commonality is that all these apps are experts at creating addictive habits, as evidenced by their personalized recommendations, avg usage time, number of logins per day per user, etc.” (LINK)

I distinctly remember having conversations with several Brazilian hedge funds as recently as last summer who were investors in Sea Ltd. When the topic of Brazil came up, many of them didn’t even know Shopee was operating in their own backyard!

Part of this stems from the fact that..”read the entire letter here]

 

 

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Disclosure. None. Hedge Funds are Selling Microsoft and Buying These 10 Tech Stocks Instead is originally published on Insider Monkey.