We recently compiled a list titled Starter Stock Portfolio: 10 Safe Stocks To Invest In Now. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against the other safe stocks to invest in.
The Market Outlook for the Rest of 2024
A probable rate cut has provided hope for the economy. Despite that, the impact on financial markets and stocks remains uncertain. On September 4, Adam Parker, Trivariate Research founder and CEO, appeared in an interview on CNBC. Parker was not surprised that tech stocks were down by close to 4% at the beginning of September, that too right before an impending rate cut. Parker highlights that the inconsistency in the market at the moment is not normal, and with multiple rate cuts over the next two years, he has no reason to hold a positive economic outlook. He suggests that eight probable rate cuts indicate that the economy is slowing, consumer spending is declining, and unemployment is rising, all of which are not good signs for the market. The interviewer counter questions that eight rate cuts with a 25 basis point reduction are not as disastrous to presume a faltering economy. Parker then highlights that rate cuts in the past have been supported by consistent data, an incremental fiscal, and an expansion of the balance sheet, all of which are currently out of the picture. You can also read our piece on the best battery stocks to buy according to short sellers.
The Possible Impact of Rate Cuts on Stocks
On September 2, CNBC published a detailed report on the impact of rate cuts on the stock market in the United States. The Fed, in the footsteps of countries in Europe and Asia, recently announced an easing cycle, after a long period of high interest rates. As per current pricing data, the Fed is expected to have three 25-basis point cuts by the end of this year. Speaking of the global economic outlook, 2025 will see a lower-rate environment followed by easing inflationary pressures. However, the fear of recession in the United States tells another story. Analysts believe that the last four months of 2024 will be considerably weak and choppy amid geopolitical factors, uncertainty from the AI sector, corporate earnings, and most importantly, an overdue consolidation correction.
On September 3, JP Morgan reported that investors must not expect the cutting cycle to provide a fresh start to stocks. Leading strategists at the firm suggested that the rate cut cycle is rather reactive and is in response to a wilting economy, having little to no impact on stocks. Paul Christopher, head of global investment strategy, on the other hand, suggested that the market environment today resembles the market in 1995, increasing hopes for a market upside amid stable GDP strength and forecasts.
Bear market or bull market, certain stocks deserve a place in every investor’s portfolio. These are long-term opportunities to hold and will continue to provide superior returns, as they have for decades.
Our Methodology
To come up with the 10 safe stocks to invest in now, we looked for well-established companies in the energy, finance, healthcare, technology, and fast-moving consumer goods (FMCG) industries. These stocks have a history of performing well and boasting consistent financial results, making them ideal and safe long term investments for beginners. We then picked the top 10 stocks that were the most widely held by money managers and ranked them in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
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) is one of the biggest technology companies in the world that develops productivity and business suite applications, cloud products, and personal computing products.
The company’s chairman and CEO, Satya Nadella believes that Microsoft’s financial performance is attributable to its market-competitive platforms and cloud services. Microsoft Corporation (NASDAQ:MSFT) reported revenue worth $64.7 billion in FQ4 2024, up by 15% year-over-year. During the same quarter, Microsoft Cloud had $36.8 billion in quarterly revenue, up by 21% year-over-year, and posted record bookings. Its productivity/business processes and intelligent cloud segment, on the other hand, logged revenue worth $20.3 billion and $28.5 billion in revenue, respectively.
The company is a leading investor in artificial intelligence technology. Its AI-backed cloud service, Azure OpenAI service witnessed an increase in customer base by 60%, reaching 60,000 clients in the second quarter of 2024. Previously in July, Microsoft and Lumen Technologies signed a partnership to enhance and modernize Lumen’s workloads to Microsoft Azure. Earlier in August, Microsoft Corporation (NASDAQ:MSFT) partnered with Palantir Technologies, a data software company, to deploy Palantir’s suite of products in Microsoft Azure.
Overall, Microsoft Corporation’s (NASDAQ:MSFT) financial strength coupled with its strategic partnerships make it one of the safest stocks to invest in. In the second quarter, 279 hedge funds held positions in Microsoft (NASDAQ:MSFT) and their stakes amounted to $89.068 billion. As of June 30, the Bill & Melinda Gates Foundation Trust is the most dominant shareholder in the company and has a position worth $15.6 billion.
Baron Opportunity Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is the world’s largest software and cloud computing company. Microsoft was traditionally known for its Windows and Office products, but over the last five years it has built a $135 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. The stock contributed to performance because of continued strong operating results and investor enthusiasm regarding Microsoft’s leadership across the secular megatrends of AI and cloud computing. Recent business momentum continued to show evidence of the strength and attractiveness of Microsoft’s product portfolio among its customer set: (1) Azure OpenAI – its suite of AI services – is now used by 65% of the Fortune 100 and contributed 7% of Azure revenue (an annualized run rate of $5.2 billion); (2) GitHub Copilot – its AI code writing service – is bending the productivity curve for developers (reports of 40%- plus improvements in developer efficiency) and now has 1.8 million paid subscribers, with growth accelerating to over 35% quarter-over-quarter; and (3) Copilot Studio – its AI application service that makes it easier for anyone to build an application, automate a workflow, or create a Copilot using natural language. 30,000 organizations across every industry have used Copilot Studio to customize Copilot for Microsoft 365 or build their own, up 175% quarter-over-quarter. In the March quarter, Microsoft again reported better-than-expected financial results, highlighted by Microsoft Cloud growing 23% year-over-year, with the fastest commercial bookings in six quarters, and Azure accelerating to 31% constant currency growth, up from 28% in the previous quarter. June quarter guidance came in-line with consensus, but the company provided higher guidance for the most important segment, Intelligent Cloud, on the back of continued strong trends across Azure and Azure OpenAI. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes.”
Overall MSFT ranks 2nd among the safe stocks to invest in. 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 on Insider Monkey.
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