We recently compiled a list of 10 Most Promising Long-Term Stocks According to Hedge Funds. In this article, we will look at where Microsoft Corporation (NASDAQ:MSFT) ranks among the most promising long-term stocks according to hedge funds.

Another 50 bps Cut is Still Restrictive

The labor market has been more resilient than ever. On October 4, Gary Cohn, the IBM vice chairman, and former US National Economic Council director in the Trump administration, appeared in an interview on Yahoo Finance to discuss the job report and the US economy.

Cohn suggests that the jobs data is the least scientific information the government puts out and therefore, it must be taken with a grain of salt. However, he emphasizes the importance of understanding trends. The number of people entering the workforce is expanding and jobs are being created, deducing that the market is in a neutral place.

Cohn believes that the US economy is normalizing. He reveals that we have not lived in a normal economy in over a decade, therefore, relative to history, the status quo is fairly reasonable. He adds that the Fed has orchestrated a soft landing and expects another 50 basis point cut before the end of 2024, which according to him is still restrictive.

Portfolio Manager Highlights High Growth Sectors

As the AI flame starts to settle, the market may be up for a major shift. On October 7, Keith Buchanan, GLOBALT Investments senior portfolio manager, appeared in an interview on Yahoo Finance to discuss his expectations of the market.

Expectations for earnings have been revised from mid-single digits to mid-double digitals, promising robust growth as 2024 comes to a close. Buchanan suggests that most of the growth comes from artificial intelligence and the widening of earnings growth beyond traditional growth sectors like technology.

This year, the industrial and energy sectors have enjoyed greater returns capturing a large chunk of the market. Buchanan is highly bullish on AI plays and value stocks. He also adds that names in financials, industrials, and consumer discretionary are poised for growth ahead of 2024. He advises investors to consider geopolitical events before making any investment decisions.

Now that we have assessed the future of the financial markets and possible sectors eyeing growth, let’s take a look at the 10 most promising long-term stocks according to hedge funds.

Our Methodology

To find the most promising long-term stocks according to hedge funds, we went over multiple rankings over the internet to list long-term blue chip stocks. We then examined the analyst upside and the hedge fund sentiment of these stocks as of Q2 2024 and picked the most popular ones. The stocks are sorted in ascending order of the number of hedge fund holders as of Q2 2024 as a primary metric and analyst upside as of October 13, as a secondary metric.

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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Microsoft Corporation (NASDAQ:MSFT)

Number of Hedge Fund Holders: 279

Analyst Upside as of October 13, 2024: 19%

Microsoft Corporation (NASDAQ:MSFT) is a well-known technology company behind the commonly used Microsoft Suite. The company also develops cloud products and personal computing products.

Like its peers, Microsoft Corporation (NASDAQ:MSFT) is pouring capital into artificial intelligence. Over the past few months, the company has closed deals with startups and technology companies to run their workloads on Microsoft Azure, its cloud platform. A few days ago, the company made an addition to its list of partnerships by signing an agreement with Rezolve AI, a startup revolutionizing the online retail landscape.

The list does not end here. Microsoft Corporation (NASDAQ:MSFT) along with other crucial stakeholders made a $100 billion deal to improve the functioning of data centers and artificial intelligence. In addition to that, the company has also been making strategic investments in AI and data in other countries.

Microsoft Corporation (NASDAQ:MSFT) is a long-standing company with immensely strong fundamentals. This coupled with its investments in AI and data make it one of the most promising stocks according to hedge funds.

Fred Alger Management’s Alger Spectra Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:

“Microsoft Corporation (NASDAQ:MSFT) is a beneficiary of corporate America’s transformative digitization. The company operates through three segments: Productivity and Business Processes (Office, LinkedIn, and Dynamics), Intelligent Cloud (Server Products and Cloud Services, Azure, and Enterprise Services), and More Personal Computing (Windows, Devices, Gaming, and Search). During the quarter, shares contributed to performance after the company reported strong fiscal third quarter results, underscoring its leadership position in the cloud and highlighted its role as a primary facilitator and beneficiary of AI adoption. Company revenue growth, operating margin, and earnings growth surpassed consensus expectations. The utility scale Azure cloud business grew 31% in constant currency of which 7% was AI related versus 3% two quarters ago. Further, management noted most of the AI revenue continues to stem from inference rather than training indicating high quality AI applications by Microsoft’s clients. Management also indicated that the significant cost-cutting programs in corporate America are done, suggesting that the cost optimization headwinds previously impacting Azure’s growth are over. Separately, management provided color on their new AI-productivity tool, Copilot, noting that approximately 60% of Fortune 500 companies are already using Copilot, and that the quarter witnessed a 50% increase in Copilot assistance integration within Teams. We continue to believe that Microsoft has the potential to hold a leading position in AI, given its innovative approach and demonstrated high unit volume growth opportunity.”

Overall MSFT ranks 2nd on our list of the most promising long-term stocks according to hedge funds. 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.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure: None. This article is originally published on Insider Monkey.