We recently looked at Goldman Sachs’ “List of Stocks Hedge Funds and Mutual Funds Love and Hate: 28 Stocks on the Radar of Mutual Funds and Hedge Funds.” In this article, we’ll take a look at where Microsoft Corporation (NASDAQ:MSFT) sits on fund managers’ attention.
The stock market in 2024 is full of surprises due to the growing interest in artificial intelligence. Just as many Wall Street analysts were troubled by fears of a recession that turned out to be unfounded, analysts have repeatedly revised their year-end targets for the flagship S&P index this year. It continues to be corrected. Take the example of investment bank Goldman Sachs. The latest index year-end target was announced in October, and the bank currently believes the index will finish at 6,000 points by the end of this year.
The central bank had raised its year-end forecast to 5,600 points in June, ahead of reaching its October target. This was based on optimism about big tech stocks and the rush around AI that continues to fuel them. This adds 400 points to the previous target of 5,200 points announced in February and adds 100 points to the previous upwardly revised target of 5,100 points, exceeding Goldman Sachs S&P’s initial year-end target of 4,700 points. It means that it was done.
It is no exaggeration to say that the market exceeded expectations in 2024. Its most recent value was 5,832 points, just 2.8% below Goldman’s latest 2024 forecast. The index is up 23.6% year-to-date, and to get an idea of how much of its gains are being driven by artificial intelligence, check out the fact that the Philadelphia Stock Exchange Semiconductor Stock Index is up 27.8% year-to-date. Please consider. AI, and especially semiconductor stocks, remain in the spotlight, and the key question now is whether this performance will be sustained after the third quarter earnings season.
The second quarter season was nothing short of fireworks for some of the AI giants. When I think back on my memories, two companies in particular come to mind. The first is the Wall Street AI darling known for producing the world’s best AI GPUs, and the second is the company behind the Windows OS that has invested billions of dollars in AI startup OpenAI. This is a company located in Both stocks performed well in the first half of 2024, but pared back some of their gains in the second half. Starting with the GPU company, the company’s stock is up 186% year-to-date. However, the stock price has increased modestly by 1.84% since its peak in June, when it was up 181% year-to-date. The software company’s stock peaked at a year-to-date return of 26% before the second-quarter earnings season, but has fallen 10.4% since that peak.
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Even so, the difference in stock price appreciation between the two is not surprising. Simply put, GPU manufacturers have recorded higher profits because their products are urgently needed in the AI industry. Meanwhile, the software company’s products are part of a later wave of AI that is counting on strong demand for AI products in the business world to boost profits. The company has already invested billions of dollars into OpenAI, so turning a profit is key. For more information on AI investing, check out Goldman Sachs’ Best Phase 2 AI Stocks: Top 24 High-Conviction AI Stocks.
Shifting gears, mutual funds seem to be doing well in this dynamic stock market environment. A BofA study of first-quarter performance found that 64% of actively managed large-cap U.S. mutual funds outperformed their benchmarks. This is a significant increase over the 38% increase in funds that outperformed their benchmarks last year, and the bank estimates that stronger equity performance is part of the reason for the boost in returns. The results of a Wall Street Journal survey also add to this trend. We examine the performance of large-cap growth funds in the first half of 2024 and show that 7 Magnificent stocks have propelled large-cap growth funds to the top of the mutual fund pyramid. The study looked at 1,218 funds and found that only 15% were in the red, and the average 12-month return for all funds studied was 16.5%.
On one end of the spectrum are risk-averse mutual funds, and on the other end are hedge funds that use leverage to chase alpha. This risk means that the Fund may accumulate large losses that may take years to recover. According to Goldman’s latest industry report, this is true for some funds. This shows that Tiger Global, Whale Rock, and Third Point, which fell more than 50%, 45%, and 21.8% in 2022, have yet to recover. In 2023, the three funds recorded 28.5%, 18%, and 4.1%, respectively, with Tiger Global and Third Point performing 10.7% and 10.9% through July, and Whale Rock 18.9% through May. It was.
In fact, according to GS data, about a third of long-short funds have yet to recover their losses in 2022, along with 31% of event-driven funds and 45% of macro-driven funds. are. However, the best-performing funds in the first half included Bridgewater Associates and Citadel, with returns of 14.1% and 13.7%, respectively. AQR Capital seems to be the top performer among hedge funds, with its long/short fund returning 16.3%.
our methodology
To create a list of stocks that hedge funds and mutual funds like and dislike, we’ve divided Goldman’s Hedge Fund Trend Monitor and Mutual Fundamentals report into four categories. These categories include stocks that both avoid, stocks that both like, and stocks that one likes but the other avoids. Stocks in these categories were ranked by the number of hedge funds that purchased the stock in Q2 2024. To learn more about top hedge fund investment numbers in some of these stocks, check out Goldman Sachs’ Best Hedge Fund Stocks. : Top 20 stocks.
Why are we interested in stocks that hedge funds invest in? The reason is simple. Our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming the benchmark by 150 points. (Click here for details).
A person staring intently at a screen full of stock information from a brokerage firm, suggesting that the company has stock market expertise.
Number of hedge fund holders in Q2 2024: 279
Category: Most popular in HF and underweight among mutual funds
Microsoft Corporation (NASDAQ:MSFT) is the penultimate tech giant on our list. The company’s Windows operating system is the most widely used product of its kind in the world. Microsoft Corporation (NASDAQ:MSFT) also holds a significant position in the cloud computing industry through its Azure cloud computing platform. As a result, cloud computing plays a central role in Microsoft Corporation’s (NASDAQ:MSFT) hypothesis, with cloud computing accounting for $28.5 billion of its $64 billion in fourth-quarter sales. Additionally, as Microsoft Corporation (NASDAQ:MSFT) invests billions of dollars in OpenAI, investors are also keeping an eye on whether it can generate profits from the AI products it sells to businesses through its Enterprise Software division. Masu. This has led to a 10.7% share price decline since July, a decline that accelerated following Microsoft Corporation’s (NASDAQ:MSFT) latest earnings report.
Baron Funds mentioned Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter. The company says:
“Microsoft Corporation is the world’s largest software and cloud computing company. Microsoft has traditionally been known for its Windows and Office products, but over the past five years it has expanded to include Azure cloud infrastructure services, Office 365 and Dynamics 365 cloud delivery. The company has built a $135 billion run-rate cloud business, including applications. Continued strong performance and investor enthusiasm for Microsoft’s leadership in the long-term megatrends of AI and cloud computing contributed to the company’s stock performance. Recent business momentum continues to show evidence of the strength and attractiveness of Microsoft’s product portfolio, which includes (1) Azure OpenAI – its AI services; GitHub Copilot – currently used by 65% of Fortune 100 companies and contributing 7% of Azure revenue (annual run rate of $5.2 billion). is bending the developer productivity curve (reportedly increasing developer efficiency by over 40%) and now has 1.8 million paid subscribers, with growth accelerating over 35% quarter over quarter (3) Copilot Studio – An AI application service that makes it easy for anyone to build applications, automate workflows, and create Copilots in any industry using natural language. 30,000 organizations are using Copilot Studio to customize Copilot for Microsoft 365 or build their own, an increase of 175% sequentially in the March quarter. reported stronger financial results, as Microsoft Cloud grew 23% year-over-year, with commercial bookings the fastest in six quarters, and Azure accelerated to 31% growth at constant currency. 28% in the previous quarter, while June’s quarterly guidance was in line with consensus, with the company most importantly driven by continued strong trends across Azure and Azure OpenAI. provided higher guidance for the intelligent cloud segment. We believe Microsoft is one of the best positioned companies in software, cloud computing, and AI. ”
According to Goldman Sachs, MSFT ranks 10th overall on the list of stocks that fund managers love and hate. While we acknowledge MSFT’s potential as an investment, we believe that some AI stocks are more likely to deliver higher returns and do so in a shorter time frame. If you’re looking for AI stocks that are more promising than MSFT but trade at less than 5x earnings, check out our report on the cheapest AI stocks.
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Disclosure: None. This article originally appeared on Insider Monkey.
