We recently compiled a list of the 12 Best Blue Chip Stocks To Invest In According to Short Sellers. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against the other blue chip stocks.

“Investors Need a Reason to Buy”

While economic data may be scarce, every data point gives a new angle to the ever-uncertain economic conditions in the US. On September 12, Jason Draho, UBS Global Wealth Management Head of Asset Allocation, appeared in an interview on Yahoo Finance to discuss the market moves after the consumer price index (CPI) report was released on Wednesday.

Draho suggested how regular intra-day moves did not hold enough weight to impact or influence the Fed’s decision. However, he did acknowledge that the inflation data and Wall Street’s reaction to it make the case for a 25-basis cut, or more, in the upcoming Fed meeting.

Draho then hinted that investors are hoping for a soft landing and are looking for stronger reasons or economic cues to hold back, given that bad economic news, as of now, has not triggered investors as much. He also emphasized the need for more financial data and clarity on whether the Fed would be proactive with its rate cuts for further analysis.

Contrary to what investors wish, he believes the Fed will be rather hawkish than proactive with its rate-cutting cycle. He adds that while the market calls for 100 basis points in rate cuts by the end of this year, he does expect the Fed to signal way less.

He then shed light on supply challenges in the technology sector, hinting that demand is not the issue at the moment. He was particularly impressed by the earnings posted by AI companies. Draho expects tech companies to have strong balance sheets and strong earnings power by the end of 2024, making them attractive stocks despite the economic turmoil.

“Volatility Over the Last Several Weeks is Unwarranted”

On September 13, Andrew Krei, Crescent Grove Advisors co-chief investment officer, appeared in an interview on Yahoo Finance to share his bullish outlook on the economy and financial markets. Krei discussed the labor market trends and how they may impact the Fed’s decisions in the upcoming meeting.

Krei pressed that despite the “unwarranted” volatility over the past few weeks, the economic outlook remains favorable, with credit markets showing close to no signs of stress. Krei also shed light on the global economic backdrop, suggesting that international markets, especially Europe, Japan, and China were showing strong signs of recovery in trade and manufacturing.

As far as investment goes, Krei suggests that while mega-cap tech stocks have shown promising results, he is more bullish on stocks outside of the magnificent 7. He was particularly inclined to companies in healthcare, finance, and industrials, hinting that these sectors will benefit immensely from the easing cycle. He then suggested that investors must shift their focus to diversified stocks with lower valuations and relatively stronger risk-adjusted returns.

Whatever the state of the economy, some stocks are notorious for their strong and consistent financial results.

Our Methodology

To come up with the 12 best blue chip stocks to invest in according to short sellers, we first went over multiple similar rankings, our own rankings, and ETFs to compile a list of blue chip stocks. We then found the companies with the lowest short float and ranked the top 12 with the largest number of hedge fund holders and lowest short float percentage. The stocks are sorted in descending order of their short interest.

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).

Is Microsoft (MSFT) the Best Blue Chip Stock To Invest In According to Short Sellers?

Microsoft Corporation (NASDAQ:MSFT)

Number of Hedge Fund Holders: 279

Short % of Shares Outstanding: 0.74%

Microsoft Corporation (NASDAQ:MSFT) is one of the biggest technology companies in the world that develops productivity and business suite applications, cloud products, and personal computing products. It ranks third on our list of the best blue chip stocks according to short sellers.

The company’s chairman and CEO, Satya Nadella attributes Microsoft’s financial performance to its market-competitive platforms and cloud services. In the fiscal fourth quarter of 2024, Microsoft Corporation (NASDAQ:MSFT) reported revenue worth $64.7 billion, up by 15% year-over-year. During the same quarter, Microsoft Cloud, its most popular service, logged $36.8 billion in quarterly revenue, up by 21% year-over-year, and had record bookings.

The blue-chip stock is also a leader in artificial intelligence technology. Its AI-backed cloud service, Azure OpenAI service witnessed an increase in its customer base by 60%, reaching 60,000 clients in the second quarter of 2024. Microsoft’s investments in forging strategic alliances are worth mentioning. Previously, the company partnered with Lumen Technologies and Palantir to dominate the AI space and manage workloads on its proprietary cloud service, AWS.

Overall, Microsoft Corporation’s (NASDAQ:MSFT) financial strength coupled with its strategic partnerships explains why 279 hedge funds held positions in Microsoft (NASDAQ:MSFT) at the end of Q2 2024. Of those, the Bill & Melinda Gates Foundation Trust was the most dominant shareholder in the company.

Baron Opportunity Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:

“Microsoft Corporation (NASDAQ:MSFT) is the world’s largest software and cloud computing company. Microsoft was traditionally known for its Windows and Office products, but over the last five years, it has built a $135 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. The stock contributed to performance because of continued strong operating results and investor enthusiasm regarding Microsoft’s leadership across the secular megatrends of AI and cloud computing. Recent business momentum continued to show evidence of the strength and attractiveness of Microsoft’s product portfolio among its customer set: (1) Azure OpenAI – its suite of AI services – is now used by 65% of the Fortune 100 and contributed 7% of Azure revenue (an annualized run rate of $5.2 billion); (2) GitHub Copilot – its AI code writing service – is bending the productivity curve for developers (reports of 40%- plus improvements in developer efficiency) and now has 1.8 million paid subscribers, with growth accelerating to over 35% quarter-over-quarter; and (3) Copilot Studio – its AI application service that makes it easier for anyone to build an application, automate a workflow, or create a Copilot using natural language. 30,000 organizations across every industry have used Copilot Studio to customize Copilot for Microsoft 365 or build their own, up 175% quarter-over-quarter. In the March quarter, Microsoft again reported better-than-expected financial results, highlighted by Microsoft Cloud growing 23% year-over-year, with the fastest commercial bookings in six quarters, and Azure accelerating to 31% constant currency growth, up from 28% in the previous quarter. June quarter guidance came in-line with consensus, but the company provided higher guidance for the most important segment, Intelligent Cloud, on the back of continued strong trends across Azure and Azure OpenAI. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes.”

Overall MSFT ranks 3rd on our list of the best blue chip stocks to invest in according to short sellers. 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.