As elite tech stocks rose last year, the "Magnificent Seven" made billions for professional and retail investors. Microsoft (NASDAQ: MSFT), Apple, Nvidia, Alphabet, Amazon, Meta Platforms, and Tesla became "magnificent" last year after more than doubling on average.
In recent years, hedge funds have flocked into these equities, which professional investors like. According to Hedge Follow, 177 of the top investment managers own Microsoft, the most widely held Magnificent Seven stock.
Blackrock, State Street, the Bill and Melinda Gates Foundation, Ken Fisher's Fisher Asset Management, and Chris Hohn's TCI Fund Management are the biggest stockholders. Reasons for its popularity.
A simple investing thesis is a plus for hedge fund and professional investors, who prefer large-cap stocks. Microsoft has both of those criteria, and the stock has risen 1,000% in the last decade under CEO Satya Nadella.
Microsoft is more diverse than its big tech peers, with its Windows operating system, enterprise software divisions anchored by the Office software suite, Azure cloud computing division, consumer products like Xbox and Surface tablets, and properties like Linkedin, Github, and the recently acquired Activision Blizzard.
Microsoft's multi-billion-dollar investment and strategic partnership with OpenAI has allowed it to use ChatGPT technology in its Azure cloud computing service, Office software suite, Github code repository, Bing search engine, and others. Microsoft appears to have more uses for generative AI technology than its big tech contemporaries, which make most of their revenue from a few industries.
One of the smart moves under Nadella was partnering with OpenAI. Before he took CEO, Microsoft missed the mobile revolution and made bad acquisitions like aQuantive and Skype. Nadella modernized the company, invested big on the cloud, and resolved its feud with Apple, allowing its apps to interact with Apple devices and boost sales.
The stock may be best owned today because Nadella has allowed the corporation to adapt to new technology, providing it an edge over slower-moving rivals.
Microsoft's business is hard to fault these days. The Activision deal closed in October. It's outperforming its competitors in artificial intelligence and growing faster after the tech sector's post-pandemic dip. The company maintained wide profit margins and significant growth in its fiscal 2024 second quarter (ending Dec. 31, 2023) as revenue increased 18% to $62 billion and adjusted net income rose 26% to $21.9 billion.
Stocks are bought for more than business quality. Microsoft shares have a 40 price-to-earnings ratio, indicating they're expensive. That shows the business's strength, diversification, and AI development potential, but it may also slow stock growth.
I still think Microsoft will pay off over time, but the stock looks especially attractive if it pulls back. Stock market anxiety persists despite the stock's recent lack of chances. Microsoft merits a premium and is well-positioned for long-term profits, even if the price doesn't collapse.
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