Microsoft Corp (MSFT)

MSFT is a player in AI and second-best in the cloud (second to AWS). Growth is impressive.

It is an AI beneficiary as well as showing lots of strength in the non AI parts of the business eg. the cloud component and office suites. It is not reliant on advertising. It is at a good entry point to buy.

Announced this morning that a handful of clients are shying away from adding to their AI infrastructure. People bought, and they want to see how it works before they buy some more. (Kim's immediate thought was, oh no, it's one of his Top Picks :(  But this recent pullback/consolidation is a great opportunity. 

About 40% of revenue still comes from Azure (cloud side). Some pressure on free cashflow. Forward PE and price to sales metrics are in line with the 5-year averages. Good time to buy a leader. So many horses in the race on both software, hardware, and AI. Yield is 0.76%.

Short-term breather is an opportunity to get all her clients to a full-weight position. Heartbeat of the enterprise cloud that's driving the next leg of growth. Expanding AI ecosystem, which reduces dependence on any single provider. This will help support long-term innovation and flexibility. 

Not as worried about financial circularity on this name. Still a leader in the space. Growth not as concentrated as some of the other tech names. AI runway is still early, and MSFT is positioned to benefit. Ranks 10/10 fundamentally, sees 30% upside from here. Yield is 0.74%.

Quant investors are chasing news, so GOOG is going higher and other names are going lower. Mag 7's are only keeping pace with S&P performance, despite their dominating the index.

Azure has been doing very well, revenue growth is better than AWS from AMZN or GOOG. That shouldn't change anytime soon. You have to understand that the volatility of these stocks is almost double the market. Street was satisfied with earnings, but not satisfied on growth compared to expectations. So stock's fallen.

He continues to buy more. It will be involved with AI and with the potential for quantum computing going forward. You need to own at least one of the hyperscalers (MSFT, GOOG, and AMZN), and this is the one he owns.

Overpriced in 1999-2000. Didn't regain the high it reached in 2000 until 2014 or 2015. That was 14-15 years of dead money. It's gone on since then, reinventing itself with the cloud business. 

Pulled back since it last reported a few weeks ago. Below $500 is a very attractive entry point, trading at 30x forward PE. Not cheap, but reasonable given growth rate and outlook. Reported that topline grew 23%, while Azure grew 40%. Embedding AI in its offerings. 

Down, but not that much. Expensive stock, so this name would be front-and-centre in a correction. Still, Azure growth was 40% last quarter. Continues to deliver. You can see why they're winning all this cloud business (his office switched to MSFT servers, and now all of a sudden every problem is MSFT's, not John's anymore).

Competitive market. Unknown what ORCL will do as the fourth player. Bigger question for the hyperscalers is how to monetize AI. Owns other names that are cheaper.

A leader in AI. Over $100 runway to analysts' average price target. Stick with it, so many horses in the race from data to cybersecurity to AI applications. Main horse is Azure for cloud computing.

Of the group, MSFT is the most interesting to him. While it's expensive at 34x forward PE, it's not terribly so. Over its history, it prices in a lot of good news the way it did toward the end of 2021. Then something negative will come up (not necessarily company-specific), and the stock corrects pretty significantly because of its valuation.

Stock ran up from the panic selloff in April, going from $350 to $550. Post-earnings, if it can't get to and hold $550, then it tells him we'll be in a sideways pattern that could last a year or so.

The question was on buying before the earnings report on Wednesday. He doesn't speculate. Time is on your side so buy good assets when they are priced right.

Steady 10-15% earnings growth, and a lot flows through to FCF. Can easily fund a lot of the AI buildout. Can't actually build fast enough to get the GPUs they need to grow the business, so this might be an issue. Azure still growing almost 40% YOY. Multiple not demanding, perhaps even undervalued. He'd buy on any weakness over next couple of years.