We recently compiled a list of the 9 Important AI News and Ratings on Investors’ Radar. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against the other AI stocks.
Artificial intelligence has become a dominant force in the stock market, driving the performance of top companies and capturing the attention of major investors. Insider Monkey’s Q3 data reveals that 15 of the 20 companies most favored by hedge funds are deeply involved in AI, reflecting its growing influence across industries. The Magnificent 7 stocks, which include tech giants leading the AI revolution, remain the most widely held by hedge funds, highlighting their central role in shaping market trends.
The AI boom continues to surge, fueled by companies not just adopting but spearheading advancements in this transformative technology. As valuations for AI-driven stocks climb to unprecedented levels, the sustainability of this rally comes into question. Can the sector’s rapid growth justify its soaring price tags, or is a market correction inevitable? Investors remain on edge, closely monitoring the balance between innovation and valuation.
The AI Revolution: Perspectives from Industry Titans
According to a CNBC report, Nvidia CEO Jensen Huang described the “AI computing ramp” as being in its early stages, with years of growth ahead, predicting AI-driven advancements in fields like science and healthcare. CrowdStrike CEO George Kurtz highlighted how AI is enabling both cybercriminals and cybersecurity efforts, calling it the future “battle of AI.” Snowflake CEO Sridhar Ramaswamy emphasized generative AI’s role in democratizing enterprise data, noting ongoing collaborations and a robust AI product pipeline.
AMD CEO Lisa Su discussed the competitive semiconductor market, stating that different computing architectures are needed for AI’s diverse applications and stressing that AI’s full impact will unfold over the years. Lastly, Generac CEO Aaron Jagdfeld pointed to increasing power grid pressures due to AI-related technology demands, emphasizing the growing need for backup solutions for critical facilities.
READ ALSO: 11 Trending AI Stocks on Latest News and Ratings and Jim Cramer Talked About These 8 Stocks.
How Data Centers Are Straining Power Quality Across the U.S.
While AI is so far looking like a force for good, it is coming with its own challenges. According to the Bloomberg report, AI Needs So Much Power, It’s Making Yours Worse, the U.S. power grid is facing growing challenges from “bad harmonics,” which occur when electrical wave patterns deviate from the ideal. These distortions can damage home appliances, increase fire risks, and signal deeper grid issues. Data shows that households near data centers experience more severe harmonics, with over half of homes with the worst distortions located within 20 miles of major data center activity. In areas like Northern Virginia, where data centers dominate, the proportion of homes experiencing high harmonic distortions exceeds the national average fourfold.
Whisker Labs, using a million residential sensors, reports that 1.7% of sensors nationwide exceeded the 8% distortion threshold, a figure that jumps to 6% in areas like Prince William County, Virginia, the report states. While some utilities dispute these findings, the data highlights how data centers, combined with aging infrastructure, electrification trends, and extreme weather, are straining the grid.
Tech Giants Turn to Nuclear Power to Address Surging Data Center Energy Needs
As the electricity demand for data centers increases, Big Tech is looking toward nuclear fuels to meet the demand. For example, Reuters reported that Amazon has signed three agreements to develop small modular reactors (SMRs) to address the growing power demand from data centers. One project, in collaboration with X-Energy, will be based near a Northwest Energy site in Washington state and aims to generate up to 960 MW, enough to power over 770,000 homes.
The company is also funding a $500 million round for X-Energy’s SMR development, targeting over 5 gigawatts of capacity by 2039. These moves come as U.S. data center power usage is set to triple by 2030. It has also partnered with Dominion Energy for an SMR project in Virginia.
For this article, we selected AI stocks by going through news articles, stock analysis, and press releases. We listed the stocks in ascending order of their hedge fund sentiment taken from Insider Monkey’s database of 900 hedge funds.
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).
A development team working together to create the next version of Windows.
Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) integrates AI into its cloud services, productivity tools, and business solutions to enhance automation, security, and the overall user experience. Its AI efforts cover advanced cloud offerings, AI-powered business software, and cutting-edge language processing and computing technologies.
On December 27, a Microsoft spokesperson clarified to Seeking Alpha that its partnership with OpenAI allows it to tailor and integrate AI models for specific needs, such as suggesting edits in Word or making formatting changes. This comes after reports that Microsoft is considering using non-OpenAI models for its Office 365 Copilot tools, citing concerns over cost and speed for enterprise users. The company emphasized that it uses different models, including those from OpenAI and its own, depending on the task. Reports also suggest Microsoft may be looking to reduce its reliance on OpenAI.
Overall MSFT ranks 1st on our list of the AI stocks on investors’ radar. 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 timeframe. 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.