We recently published a list of 10 Most Profitable Large Cap Stocks to Buy Now. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against other most profitable large cap stocks to buy now.
The most profitable large-cap stocks, in terms of absolute net profit, are typically concentrated in industries with relatively high barriers to entry and substantial global demand. These include sectors like technology, healthcare, energy and consumer goods, where leaders can benefit from strong market positions, innovation and economies of scale. Furthermore, strong profitability usually translates very well into cash flow, which gives a lot of flexibility with capital allocation – the companies can either reinvest in growth during favorable times or support the stock price through repurchases when the market is less favorable. Consequently, the advantages of investing in such companies include stability, the potential for consistent revenue growth, and resilience during economic downturns.
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In the last decade, the most profitable large cap stocks have mostly clustered in the technology sector, leveraging such factors as the giant global total addressable market and wide margins allowed by the technological advantage. Furthermore, some of these companies took the center of the stage during 2023-2024, a time when the AI megatrend opened a new growth frontier and led to rising stock market concentration; in other words, the most profitable companies became even more profitable. This trend has resulted in a widening gap between the leading tech giants and other sectors, as investors increasingly flock to these high-growth stocks, anticipating continued dominance and innovation.
However, besides technology, there are some business models that also allow for strong profitability and cash flow. First, there are energy leaders who are literal cash cows and generate tens of billions of dollars annually from energy operations, which are vital to the world economy and are unlikely to be disrupted anytime soon. Second, there is the financial sector, and particularly banks, which are considered the blood of the world economy – by intermediating operations worth trillions of dollars annually, the leading banks can capture a tiny share of those transactions, which overall results in giant amounts of net profit. Last but not least, some of the most profitable companies in the world can be found even in more competitive sectors like consumer discretionary.
We believe that the most profitable companies can enter the spotlight again at a time when the US and global economy are at an important crossroads. Not only are these companies immune to tariffs and less sensitive to macroeconomic conditions, interest rates, and consumer health, but they also generate tens of billions of dollars in free cash flow every year, which gives them flexibility to adjust to a new regime. Investor sentiment has shifted to a pronounced bearish, as the US stock market officially entered correction mode, with more than a 10% contraction since the February peak. It appears that the fears of Trump tariffs staying for the long-term, as well as the negative impact on GDP growth from major cuts in public funding, are finally hitting the markets. Going forward, as smaller-cap stocks are pressured by uncertainty and deteriorating consumer confidence, profitable large caps can become safe havens and attract capital. The key takeaway for investors is that if one wants to stay invested in the US equity market amid the current turbulent times, they’re better off sticking to the widest moat and most profitable names out there.
Our Methodology
To compile our list of most profitable large cap stocks, we searched for the publicly traded companies with the largest amount of net income generated in the latest financial year and ranked them accordingly. For each company we also include the number of hedge funds that own the stock, according to Insider Monkey’s database of Q4 2024.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A development team working together to create the next version of Windows.
Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 317
Last year net income: $88.14 billion
Microsoft Corporation (NASDAQ:MSFT) is a global technology company that develops software, cloud computing solutions, and hardware products. Its core offerings include the Windows operating system, Microsoft 365 productivity suite, and Azure cloud platform. The company also provides enterprise solutions, gaming through Xbox, and professional networking via LinkedIn. MSFT serves businesses, governments, and consumers worldwide, offering AI-powered services, cybersecurity tools, and developer platforms. It operates across multiple industries, delivering digital transformation solutions through software, cloud infrastructure, and computing devices.
Microsoft Corporation (NASDAQ:MSFT) reported strong performance in the latest Q2 with 75% constant currency bookings growth and significant Azure AI contracts. The company’s AI revenue primarily comes from inference and post-training workloads, along with Copilot revenue, totaling $13 billion. MSFT is experiencing capacity constraints in AI infrastructure but expects supply and demand to be in balance by the end of fiscal year 2024. The company is making significant investments in long-term data center assets, with plans to shift towards more server-focused investments once the global footprint is established. Microsoft 365 Copilot deployment exceeds expectations, with customers who initially purchased buying and using more, demonstrating faster adoption than previous enterprise products.
The partnership with OpenAI remains strategically important through 2030, with Microsoft Corporation (NASDAQ:MSFT) maintaining its position as their primary partner. The company is focused on building a flexible, global AI platform through Azure that can serve all types of workloads, positioning it for long-term growth. Despite some execution challenges in non-AI workloads, MSFT continues to see strong demand for both AI and traditional cloud migrations. The company is experiencing improved margin outlook for FY2025, driven by both AI-related efficiencies and operational cost management. With $88 billion net profit generated in FY2024, MSFT is one of the most profitable large cap stocks to buy now.
Overall, MSFT ranks 3rd on our list of most profitable large cap stocks to buy now. While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that 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 but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.