We recently published a list of 10 Best Software Stocks to Buy According to Billionaires. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against other best software stocks to buy according to billionaires.

The software industry has firmly established itself as one of the most resilient and fastest-growing sectors in the global economy. As digital transformation continues to expand across various industries, businesses are increasingly relying on software solutions to enhance efficiency, support seamless growth, and foster innovation. The rising focus on automating workflows, improving customer experiences, and leveraging data-driven insights has sustained the high demand for software products.

What’s Driving Software Growth

Eric Compton, an equities strategist for Morningstar Research Services, underscored artificial intelligence and digital transformation as major drivers for growth in his Industry Outlook published on March 11. He projected consistent revenue and margin growth for the software sector, with total industry revenue anticipated to rise at an annual rate of 11% through 2029. Key factors supporting this growth include high customer retention due to switching costs, significant initial investments that translate into steady revenue streams, and sustained demand for digital transformation. Compton also identified AI adoption, increasing data requirements, and the shift to cloud-based solutions as central drivers for growth, while cautioning against potential challenges like higher interest rates, economic uncertainties, and regulatory issues.

The Morningstar strategist further emphasized that despite short-term fluctuations, the long-term demand for software remains strong, particularly in database software and customer experience applications, which are expected to grow at the fastest rate. Software companies gain an advantage from substantial upfront investments in R&D and customer acquisition, which lead to long-lasting, high-value client relationships. Compton also underlined the fact that most firms in the sector possess strong competitive advantages, or “moats,” primarily due to switching costs and network effects. Once a company adopts a software solution, shifting to a competitor is complex, ensuring a stable revenue stream. Although IT spending has normalized following the pandemic, ongoing automation, AI-driven advancements, and customer-oriented software solutions are expected to fuel sustained growth in the sector.

Opportunities in the Software Market

Recent performance in the global software industry has been marked by volatility. Jason Hunter, JP Morgan’s Head of Technical Strategy, shared insights in a January interview with CNBC, highlighting trends in the software and semiconductor sectors. He noted that while semiconductor stocks led market growth in 2024, the software sector gained momentum later in the year but underperformed in December. This pullback brought the valuation ratios of both large- and small-cap software stocks back to their breakout levels relative to semiconductors, offering a more favourable risk-reward scenario for software investments.

In conclusion, despite recent volatility and macroeconomic risks, the software sector remains an attractive space for investors due to its promising long-term outlook. Ongoing investments in cloud technology, AI, and digital transformation are expected to drive growth, with segments like database software, customer experience tools, and cybersecurity anticipated to expand at a faster pace. Companies that adapt to emerging technological trends, maintain strong customer retention, and use AI to drive innovation are likely to achieve the greatest success in the future.

Our Methodology

To determine the 10 best software stocks to buy according to billionaires, we shortlisted the top 10 enterprise and application software stocks most favoured by billionaire investors, leveraging Insider Monkey’s Q4 2024 database on billionaire holdings. We then arranged the shortlisted stocks in ascending order based on the number of billionaire investors holding stakes in each company as of Q4 2024. Additionally, we provided insights into hedge fund sentiment surrounding these stocks, using data from Insider Monkey’s Q4 2024 database of hedge funds.

Note: All pricing data is as of market close on March 14.

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).

Microsoft Corporation (NASDAQ:MSFT)

Number of Billionaire Investors: 39

Billionaire Holdings: $53.4 Billion

Number of Hedge Fund Holders: 317

Microsoft Corporation (NASDAQ:MSFT) develops and markets software, hardware, and cloud services. Its flagship products include the Windows operating system, the Microsoft Office suite, and the Azure cloud platform. Additionally, Microsoft owns LinkedIn, GitHub, and Xbox, extending its influence across various industries.

On March 13, a D.A. Davidson analyst increased the price target for Microsoft Corp. (NASDAQ:MSFT) from $425 to $450 and upgraded the stock to Buy. The analyst referred to Microsoft as the best-positioned company among the “Magnificent 7,” a term used for leading mega technology companies, citing its more disciplined approach to capital expenditures (capex) as a key factor for the upgrade.

This perspective was based on Microsoft’s guidance during the Q2 2025 results call, where the company projected flat sequential capex for Q3 and Q4. Additionally, capex for FY 2026 is expected to be lower than that of FY 2025. The analyst views Microsoft Corp. (NASDAQ:MSFT) as a defensive play due to its relatively limited exposure to consumer end-markets compared to other major tech companies.

Overall, MSFT ranks 1st on our list of best software stocks to buy according to billionaires. While we acknowledge the potential of MSFT to grow, 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: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires

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