The Panic-Proof Portfolio (Stockchase Research)Microsoft CorpMSFTPAST TOP PICKFeb 22, 2022

There are legitimate concerns of the AI product being lesser than others, as well as the software component. Its collaboration with Open AI has caused it to fall behind others in the race. However it recently re-negotiated a deal with Open AI to explore other avenues which should open things up for Microsoft. The Azure cloud offering is growing at 40% plus, and its software offerings eg Windows, etc. are a perfect launching pad for an AI application. It is 30 % off its highs.      Buy 68  Hold 3  Sell 1

Prefers Microsoft to Meta, which are both off their highs by the same percentage. MSFT will monetize their AI faster.

Is unsure what their AI strategy is and the risk to their subscription base.

Exited 6-9 months ago. Valuation is now 1x PEG or thereabouts. Trades at 21x forward PE for 18% growth. 200-day MA started to roll over earlier this year, with stock price trending below that. High-quality name, but lots of concerns around software stocks.

Good runway to price target. A hardware and software company, but put in penalty box because of software. Well positioned for enterprise, consumer, and even government services. In his top 5 holdings.

Tech companies like this got too expensive and got ahead of themselves. MSFT is still growing in double digits. AI won't go away, so the companies that invested will benefit for many years. MSFT is depressed now because it's not as an exciting story as Micron or Nvidia. The PE of 22x is attractive. Software isn't going anywhere.

Views it as a utility. Great company, wonderful platform, not just software. Innovative. Lofty 24x PE now, but potential of 12x PE for 2030 if estimates hold. Great moat, wonderful balance sheet, high operating/gross margins. Yield is 0.88%.

He has no software exposure (13% tech across the firm, a significant underweight). Have to pick your spots. Agentic AI puts software companies in a tricky position. Investing heavily in AI infrastructure, so less $$ to return to shareholders. Trading better than only 30% of S&P stocks in last 52 weeks.

On the other hand, sees semiconductors in a similar vein to copper and a call on the economy, and where pricing power gives inflation protection.

They have partnerships with OpenAI and Anthropic, so they are plugged into AI. The recent fluctuations are tied to index ETFs and not tied to fundamentals. MSFT will continue to do very well; strong balance sheet and earnings. Buy any dip.

The catalyst for their recent rally is their break up from openAI, a company that wasn't doing as well as peers. Also, MSFT is developing its own AI models.

It trades less than the market PE and is breaking out.

Concerns about Azure's growth, Copilot being underwhelming, ChatGPT, higher capex. But management's confident in Azure growth accelerating. A leading horseman of the AI revolution, but it's come off quite a bit on doubt about that. 

Buy the great companies when there's doubt. Please buy it when it's at a PEG ratio less than 1, like now. Growing 19%, trading 18x PE. Sweet spot of the Mag 7 right now. Yield is 0.86%.

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.