Sandy McIntyreMicrosoft CorpMSFTTOP PICKDec 10, 2012

Early affiliation with OpenAI hurt it; rewritten contract is encouraging. Report this morning that it's in talks with Anthropic for some work. Software base isn't in jeopardy. Quite inexpensive, in mid-20s PE. Tons of cashflow.

Concern for the hyperscalers has been capex. Still below 200-day MA, which is trending lower. Elite cloud-AI franchise. Real AI monetization down the road. Bar for execution is very high. Excellent long-term business, but technical picture is not clean at this point. Still 18% earnings growth, not unreasonably valued, but you have to pay attention to the charts.

Names like GOOG and AMZN are more diversified beyond the cloud. He also likes TSM. See his Top Picks.

Cloud business growing very quickly. Market's trying to decide whether it's a software company, cloud player, or AI company. Stuck between a rock (software company) and a hard place (OpenAI). OpenAI now can go to other platforms, but MSFT still owns the IP to distribute those licenses.

King of distribution, and distribution still matters. Sells subscriptions on per-head basis, and has to integrate models from other companies. In a grey area. He'd be more comfortable owning GOOG.

Pullback is great time to enter. She'd buy more, but she's already overweight this name. Still one of the most diversified, mega-cap tech companies in the world. Last night's numbers were spectacular, pushback is on the capex spending.

They reported. He's disappointed they didn't have more to say. Also, they're a software company.

The software business has been pummeled and trades at a very reasonable valuation. It is still growing 20%. It owns Copilot - most businesses use it and have to go through it to get to another system. It has a huge embedded data base in almost every company. They have agreed to drop the software dispute with Open AI but he is not concerned by this. We are at a very early stage of AI. It is moving very quickly and nobody knows how it will actually evolve. He uses it and finds it very helpful. 

Stable company in this space. Fairly significant investment in OpenAI. Big cloud company, #2 in market share. Its OS will adapt to the AI world quite well.

Likes it. He's reticent to rank the Mag 7, as things change so quickly. Good time to dip in, though it trades at more of a premium of ~30x PE (and perhaps you're paying up for stability).

Note that the AI money being spent is all from free cashflow. The Mag 7s are good value, and he'd tend to pick a basket rather than just one.

His focus is on small- and mid-caps, as that's where to find tremendous inefficiencies. 

That said, he has to study large caps as part of his process. It gives him a sense of what's happening more broadly. So he does follow this name, and is a huge fan of what they've done. 

You want to ask about the pricing power of a company. He can tell you, if they double the cost of the Office subscription tomorrow then he'd pay it. Copilot, he feels, is not up to par with other AI initiatives. Azure posted good numbers last quarter. Safe to keep holding.

Constrained on compute. Along with AMZN and GOOG, this name will be the way most enterprises interact with AI. Copilot will increasingly get better. It'll be a winner in the AI environment. Trading below the median multiple of its own history. Yield is 0.87%.

Bought very recently. Users can use its AI to help their businesses -- a big boost for MSFT. Should do very well in the new AI world.

Remember that hyperscalers are the ones that have the power right now. If quantum computing comes along, MSFT is already there. Building data centres, in the cloud. Hurt because of software concerns in general. Leveraging OpenAI.

Deemed fairly cheap relative to peers. Stock will probably move up. Very attractive level.

He just bought shares after being underweight this name. Tech hit a bottom last Monday with peak pessimism, and started to rebound last Monday.

He just added more. The market is bearish MSFT. He misjudged that MSFT would be the largest benefiary of AI, though MSFT will remain a large one, but software companies won't go out of business (i.e. NOW). He's playing the momentum in MSFT now. MSFT is okay for now. It will take a while before AI impedes what they do. Without a doubt, it's the battleground stock in the market now.