UBS’ Best Stocks In The AI, Growth & Low Rates Era: Top 29 US Stocks

1. Microsoft Corporation (NASDAQ:MSFT)

Number of Hedge Fund Investors In Q2 2024: 279

UBS’ Sector Rating: Most Attractive

Sector: Information Technology

Microsoft Corporation (NASDAQ:MSFT) is the world’s largest software provider. The firm enjoys a commanding and sizeable position in the consumer and enterprise software industries. Microsoft Corporation’s (NASDAQ:MSFT) Windows is the world’s most widely used consumer operating system, and its Azure platform enjoys a commanding position in the cloud computing market. Microsoft Corporation’s (NASDAQ:MSFT) stature has allowed it to become a global financial behemoth with cash and equivalents of $18 billion and total assets of $512 billion as of its latest quarter. These, in turn, have allowed it to gain a strong foothold in the frontier of the global software industry called artificial intelligence. Microsoft Corporation’s (NASDAQ:MSFT) sizeable stake in OpenAI allows it to access one of the world’s leading foundational AI models. This enables it to revamp its cloud computing business with AI offerings to improve customer experience. Consequently, AI sits dead center in Microsoft Corporation’s (NASDAQ:MSFT) hypothesis, and the firm’s ability to profit from its AI products should influence the share price due to the billions that it has invested in the industry. This was evident following Microsoft Corporation’s (NASDAQ:MSFT) fiscal Q1 earnings which saw it guide Q2 revenue at a high end of $69.1 billion. Since analysts were expecting $69.83 billion, the shares fell by 3.7% in aftermarket trading.

Baron Opportunity Fund mentioned Microsoft Corporation (NASDAQ:MSFT) in its Q3 2024 investor letter. Here is what the fund said:

“Microsoft was traditionally known for its Windows and Office products, but over the last five years it has built a $147 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. Shares gave back some gains from strong performance over the first half of this year. For the fourth quarter of fiscal year 2024, Microsoft reported a strong quarter with total revenue growing 16%, in line with the Street; Microsoft Cloud up 22%; Azure up 30%; 43% operating income margins; and 36% free cash flow margins. Core Azure growth came in one point shy of expectations, however, due to a soft European market and continued constraints on AI compute capacity. In the same vein, while Microsoft reiterated its fiscal 2025 targets of double-digit top-line and operating income growth, quarterly guidance called for Azure growth to slow a bit before accelerating in the back half of the fiscal year, as capital expenditures increase, yielding an expansion of AI compute capacity. We believe this investment is a leading indicator for growth, with more than half of the spend related to durable land and data center build outs, which should monetize over the next 15-plus years. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes, and we remain investors.”

MSFT is a top stock in the AI and growth era according to UBS. While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that some 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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