We recently published a list of 10 Good Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against other good stocks to buy according to hedge funds.

When seeking investment opportunities, individual investors often look to hedge funds for guidance. Hedge funds are known for their sophisticated investment strategies, high-level expertise, and significant market influence. Hedge funds are massive players in the global investment landscape, managing trillions of dollars in assets. According to Preqin, as of Q3 2024, hedge funds manage approximately $4.87 trillion in assets globally. This significant amount of capital means that hedge funds have substantial market power. When they invest in certain stocks, their actions can impact stock prices, drive market trends, and influence broader economic sentiment. As such, their decisions are followed closely by institutional and retail investors alike.

A key reason hedge fund stock picks are worth paying attention to is their wide diversification across various sectors and strategies. Multi-strategy hedge funds, which allocate capital across various investment strategies, have gained prominence. According to WealthBriefing from 2017 to the third quarter of 2024, the number of multi-strategy fund launches grew at an annual rate of 4%.

Hedge Funds’ Dual Investment Strategy (Long and Short Positions)

Hedge funds are also known for using a dual approach—investing in both long and short positions. This allows them to profit from rising and falling markets, giving them a comprehensive view of market dynamics. According to data from BarclayHedge, hedge funds that employed a long/short strategy in 2024 saw returns of around 9%.

​Hedge funds have increasingly focused on artificial intelligence (AI) and technology sectors, adjusting their portfolios to capitalize on emerging opportunities. According to a Goldman Sachs report analyzing 695 hedge funds with $3.1 trillion in gross equity positions at the start of Q1 2025, there has been a notable shift in investment strategies. The report indicates that hedge funds have become more selective within popular sectors and themes. Notably, they have incrementally added positions to AI Phase 3 companies with AI-enabled revenues. Companies like Salesforce are ranked among the “Rising Stars,” reflecting a significant increase in hedge fund popularity during the last quarter. ​

Our Methodology

We used a consensus-based approach by using opinions from financial websites like Forbes Advisor, Motley Fool, and Morningstar to first compile a list of good stocks to invest in right now. We then shortlisted and ranked these stocks by using Insider Monkey’s hedge fund data for the fourth quarter of 2024. The stocks are ranked based on the number of hedge funds holding stakes in them, from the lowest to the highest number.

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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

A development team working together to create the next version of Windows.

Microsoft Corporation (NASDAQ:MSFT)

No of Hedge Fund Holders: 317

Microsoft Corporation (NASDAQ:MSFT) is a leading global technology company that develops and supports software, services, devices, and cloud solutions. With its cloud-first and AI-driven approach, the company continues to drive digital transformation across businesses and consumers worldwide.

Microsoft Corporation (NASDAQ:MSFT) has announced a strategic shift in its communications portfolio, with the planned shutdown of Skype on May 5, 2025. The decision, disclosed on February 28, 2025, aligns with the company’s broader focus on Microsoft Teams, reflecting its continued investment in enterprise collaboration solutions. The company has assured that the transition will not result in job cuts, emphasizing a seamless migration for users.

Microsoft Corporation (NASDAQ:MSFT) reported strong Q2 FY25 results, driven by continued growth in cloud and AI services. Revenue came in at $69.6 billion, up 12% YoY, while operating income rose 17% to $31.7 billion. Net income increased 10% to $24.1 billion, with diluted EPS reaching $3.23, also up 10% YoY. The company’s Cloud revenue surged 21% YoY to $40.9 billion, reflecting the company’s deep investment in AI and enterprise solutions. CEO Satya Nadella highlighted that Microsoft Corporation (NASDAQ:MSFT)’s AI business has surpassed an annual run rate of $13 billion, growing 175% YoY.

Overall, MSFT ranks 2nd on our list of good stocks to buy according to hedge funds. While we acknowledge the potential for MSFT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. 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.

 

READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap

 

Disclosure: None. This article is originally published at Insider Monkey.