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Microsoft: The most sought after stock by hedge funds

by Simon Jones Tech Reporter
27th Jun 24 3:27 pm

Microsoft’s status as the world’s most valuable company has translated into favourable outcomes, including heightened demand for its stock shares.

According to Stocklytics.com, Microsoft has emerged as the top choice for hedge funds, with 44% of these institutional investors holding the tech giant’s stock in their portfolios.

The site’s financial analyst, Edith Reads, told LondonLovesTech, “Microsoft’s strategic shift to AI and cloud services development has enhanced its profitability, calling the attention of hedge fund investments.

“The substantial number of hedge fund holding Microsoft stock underscores the company’s attractiveness as a long-term investment. Its robust financial performance, strategic initiatives, market dominance, and resilience make it a compelling choice for professional investors.”

Hedge funds’ tech portfolio

Hedge funds are making sizeable ownership deals, with 44% of these funds holding Microsoft, 42% holding Amazon, and 38% holding Alphabet Class A. In addition to their significant interest in Microsoft, Amazon, and Alphabet, hedge funds have acquired notable holdings in Apple and Meta Platforms, with 36% of the funds holding each and 34% holding Nvidia.

Over 600 of these funds have stock shares in these tech firms, highlighting the overwhelming scale of hedge fund investments. Microsoft alone has attracted an astounding 874 of these institutional players. Amazon and Alphabet Class A follow closely, with 835 and 745 hedge funds invested, respectively, while Apple and Meta Platforms have drawn the attention of 714 and 710 hedge funds, respectively.

Nvidia closes in with a slightly lower representation, just under 700 funds. Both the chipmaker and Alphabet Inc. face notable declines in ownership as specific hedge funds, including Scion Management LLC, sell off their shares.

Apple represents the most significant increase among the prominent tech stocks, with hedge funds adding over 26 million stock shares to their portfolios in the last quarter. The increase in these institutional investors’ interest could be attributed to Apple’s considerable steps in integrating AI enhancements into its flagship iPhone devices.

Microsoft’s appeal

Microsoft’s market dominance and competitive edge are crucial factors for hedge funds. The company’s extensive global presence, diverse product portfolio, and strong brand equity provide a competitive moat.

According to the USA Today analysis, Microsoft’s earnings per share are now at $11.80. This comes after the company reported its fiscal year 2023 revenue at $211.9 billion, about a 7% climb from 2022. The substantial 20% rise in the third quarter and the consistent profit margins across all four quarters above 35%  in 2023 add to Microsoft’s notable gains.

The company’s partnerships with Open AI and Azure have marked its foray into AI and cloud services. Moreover, it has extended its presence into the gaming sector by acquiring ZeniMax and Activision Bizzard, prominent game developers.

Microsoft’s multifaceted approach in AI leadership, gaming, and cloud computing has made it more appealing to hedge funds. Investors are now eyeing notable profits from all of its ventures.

Since Microsoft Office is a mature product and likely has limited growth opportunities, the company’s best bets lie with investments in AI and cloud services. However, the company faces competition for cloud services from other tech companies, such as Amazon and Alphabet. Still, the significant number of hedge funds holding Microsoft stock is a testament to the confidence in the tech firm’s enduring value and growth potential.

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