We recently compiled a list of the “10 Best Technology Stocks to Buy” recommended by Brad Gerstner, and in this article we'll take a look at how Microsoft Corporation (NASDAQ:MSFT) stands relative to other technology stocks.
Gerstner is bullish on tech for 2024
On December 1, 2023, Altimeter Capital CEO Brad Gerstner appeared in an interview with CNBC and explained that tech stocks are expected to outperform non-tech stocks in 2024. Over the past decade, tech stocks have compounded returns at nearly 16% and non-tech stocks at 6%. 2023 was a recovery year for the tech industry after a slump in 2022 due to rising interest rates. Large tech companies and their operating efficiencies are poised for strong growth. While inflation and interest rates will determine what will fall, companies that have invested in augmented intelligence will experience long-term growth. Gerstner believes that the 16% to 6% difference will be a trend that repeats in 2024.
Gerstner believes now is the right time to invest in technology.
On June 11, Brad Gerstner appeared on CNBC again to talk about speculation surrounding the software industry. Gerstner suggested that the software industry is still valuable as companies and startups are still making deals despite the headwinds. Gerstner believes there are three main reasons for the software industry's downward trend. He believes CEOs and CTOs are becoming cautious about investing in software. Executives want to paint a clearer picture of the AI ​​boom before making risky investments. In addition, interest rates are higher than expected due to delayed interest rate cuts and multiple compression. Finally, general uncertainty about the future is negatively impacting the software industry's growth. Gerstner noted that now may be the best time to allocate stock to software companies as the software industry is trading at 20% below its 10-year average. Also see Best Robinhood Stocks Under $20.
Gerstner believes that data and databases are crucial to AI applications. He believes that companies that use data to drive AI will be much more advanced than those that simply automate services. Big tech companies are putting data at the forefront of all artificial intelligence applications. You may also want to read our article on the stocks that hedge funds are crazy about right now.
Brad Gerstner is bullish on technology, particularly software and AI. In Q1 2024, he initiated six new positions and added holdings in two more stocks, bringing his portfolio of 13F securities to $6.5 billion at the end of the quarter. Now, let's talk about his top tech stock picks.
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Our Methodology
We looked at Altimeter Capital's Q1 portfolio and selected growth stocks from the fund's top 13F holdings. Additionally, we added hedge fund overall sentiment as of Q1 2024. Why are we interested in stocks where hedge funds are concentrated? The reason is simple: our research shows that you can outperform the market by mimicking the top holdings of the best hedge funds. Our quarterly newsletter strategy selects 14 small and large stocks each quarter and has returned 275% since May 2014, beating the benchmark by 150 percentage points (more details here).
Note: All pricing data is accurate as of June 28th.
A team of developers working together to create the next version of Windows.
Microsoft Corporation (NASDAQ:MSFT)
Altimeter Capital stock value: $694,133,306
Number of hedge fund holders: 293
Microsoft Corporation (NASDAQ:MSFT) is one of Brad Gerstner's top five stock picks. The stock represents approximately 11% of Altimeter Capital's 13F portfolio. The company's overall quarterly growth was driven by demand for the Microsoft Cloud, with revenues up 23% year over year to $35 billion. Microsoft Azure continues to be a top pick among customers, with over 65% of Fortune 500 companies and over 30,000 organizations using Azure OpenAI Service, and over 30,000 organizations using Copilot Studio to customize Copilot for their organizational needs. The number of organizations using Copilot grew 175% quarter over quarter.
In April, Microsoft announced Phi-3, its family of small language models measuring 3.8 billion parameters. The models perform better than larger models. They are available in the Microsoft Azure AI model catalog and Hugging Face. Phi-3 models will also be available as NVIDIA NIM microservices that can be deployed anywhere. Microsoft Corporation (NASDAQ:MSFT) plans to release additional models to Phi-3, including Phi-3-small, measuring 7 billion parameters, and Phi-3-medium, measuring 14 billion parameters.
Azure Arc, a hybrid multicloud management tool, now has more than 33,000 customers, a two-fold increase year over year. The company's $100 million Azure deals have grown 80 percent year over year, while $10 million deals have doubled in the same period. Fabric, the company's next-generation analytics platform, has more than 11,000 paying customers.
As of the end of the first quarter of 2024, 293 hedge funds held shares in Microsoft Corporation (NASDAQ:MSFT) with a combined holdings of $88.16 billion. MarVista Investment Partners is also bullish on the stock due to the company's strong position in the digital space. Below is a comment from MarVista Investment Partners' investor letter for the first quarter of 2024:
“Microsoft Corporation (NASDAQ:MSFT) remains in a strong position, poised to gain market share as businesses transition to a digital-first environment and adopt AI-powered generative solutions. The company's dominant presence in the enterprise space and comprehensive product portfolio covering infrastructure services (IaaS), platform services (PaaS) and software services (SaaS) have established it as a key IT solutions provider for businesses of all sizes. Microsoft is effectively executing its strategy at scale by delivering digital transformation roadmaps and adoption of AI-powered solutions such as ChatGPT to improve productivity and reduce costs. As a result, Microsoft's solutions will be more resilient in a tougher macroeconomic environment and we expect their intrinsic value to grow at a low double-digit rate over the investment horizon.”
MSFT ranks #5 on our list of Best Technology Stocks According to Brad Gerstner. For other tech stocks that hedge funds are watching, see 10 Best Technology Stocks According to Brad Gerstner. While we see potential in MSFT as an investment, we believe AI stocks have a better chance of delivering higher returns in a shorter time frame. If you're looking for AI stocks that are more promising than MSFT but still trade for less than 5 times earnings, check out our report on the cheapest AI stocks.
Read next: Analyst sees new $25 billion 'opportunity' in NVIDIA, Jim Cramer recommended these 10 stocks in June.
Disclosures: None. This article was originally published on Insider Monkey.
