We recently published a list of 9 Buzzing AI Stocks to Watch on Latest News. In this article, we are going to take a look at where Microsoft Corp (NASDAQ:MSFT) stands against other buzzing AI stocks to watch on latest news.
Doug Clinton, Intelligent Alpha founder, talked recently about the issue of scaling in AI on CNBC and said that in the past the improvement of AI models was surging based on the data inputs. However, Clinton referred to the recent reports of AI models hitting a plateau in performance. He believes this issue will be important for AI investors in the coming months and years.
“Just to give the quick 101: Over the last few years, what we’ve seen in AI model development is that the more data you put into these models and the more compute you use to train them, the better the models get—very predictable. However, recent reports from OpenAI and Google show that the latest models they’ve trained haven’t been as good as expected based on scaling laws. This has sparked debate in Silicon Valley. Even Sam Altman tweeted about it last week, saying, “There is no wall,” so maybe it’s not an issue—we’ll see. But I think Jensen really needs to address that question because the 18 to 24-month picture hinges on whether these companies will need to invest in something beyond just compute.”
However, the analyst is bullish on the broader AI market in the long term and believes companies are just getting started in this bull market.
“I think if you take a longer-term view—2 to 4 years—we’re still very confident we’ll be in an AI bull market. That doesn’t mean there won’t be pullbacks here and there, but I think we have a long way to go. Companies are really just starting to adopt AI, and we’ll begin to see those revenues over the next year and beyond.”
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For this article we picked 10 AI stocks trending on latest news and analyst ratings. With each stock we have mentioned the number of hedge fund investors. 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).
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Number of Hedge Fund Investors: 279
Dan Niles, Niles Investment Management founder and portfolio manager, in a recent program on CNBC discussed Microsoft Corp (NASDAQ:MSFT) and said the stock should “worry” you amid declining Cloud growth and valuation.
“The one that should worry you is Microsoft, and the reason I say that is we’ve all heard of OpenAI and ChatGPT, which really kicked all this off at the end of calendar 2022. Obviously, Microsoft has a huge stake in OpenAI. But if you look at the numbers for Microsoft, their June quarter Azure, which is their cloud business, was growing 35%. Then that went to 34% in the September quarter, and they guided to 31% to 32%. So the numbers are going down. If you look at Amazon, their cloud business has actually accelerated over the last five quarters, from 12% to 19% growth. They’re the biggest. And if you look at Google, which is the smallest of them, their growth accelerated from 29% last quarter to 35% in the quarter they just reported. So you’ve got to ask yourself: is Microsoft actually getting a return for all this money that they’re investing?”
Niles said Microsoft Corp (NASDAQ:MSFT) P/E of 33 is also higher than the market’s 24 and that should also concern investors.
Microsoft Corp (NASDAQ:MSFT) shares recently fell after the company reported its latest quarterly results. Analysts believe most of the revenue beat came from PC segment, while investors were paying more attention to AI and Azure. Azure’s 34% growth met expectations, though guidance for next quarter fell short, projecting between 31% and 32% growth—1 percentage point below forecasts. This dip is attributed to delays in data center capacity from third-party providers, though Azure’s consumption trends remained steady.
Investors hoping for a rebound in IT spending were likely disappointed, as stable Azure consumption suggests no significant uptick in the second half of the year. In addition, the lower-than-expected Q2 guidance underscored tempered growth expectations.
AI services, however, contributed a robust 12 points to Azure’s growth, a steady continuation from the previous quarter. Microsoft’s management confirmed strong demand for AI services, although supply constraints are limiting further expansion. Microsoft Corp (NASDAQ:MSFT) anticipates AI-related revenues, including M365 Copilot and Azure AI, could reach $10 billion annually by next quarter—making it one of the fastest-growing segments in Microsoft Corp (NASDAQ:MSFT)’s history.
Carillon Eagle Growth & Income Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q3 2024 investor letter:
“Microsoft Corporation (MSFT) traded lower following concerns about the sustainability of its data center buildout for generative artificial intelligence (AI). The company continues to show strong growth in its cloud segment, and management highlighted optimism surrounding demand signals.”
Overall, MSFT ranks 2nd on our list of buzzing AI stocks to watch on latest news. While we acknowledge the potential of MSFT, our conviction lies in the belief that under the radar 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.
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