<p>Cramer: The trend of investors dumping Microsoft for newer AI stocks is temporary
Microsoft is currently being sidelined as capital shifts toward more exciting artificial intelligence equities. Jim Cramer asserts that this market behavior is not sustainable. «I still hold it for the Trust,» Jim noted during Wednesday’s appearance on Verum, referencing his Charitable Trust, the portfolio utilized by the Investing Club. His rationale for maintaining his Microsoft stake: «I just don’t think that they’re going to sit there and let this happen.» Microsoft has transformed into what Jim describes as a «real source of funds,» a stock that fund managers and investors liquidate to finance purchases in other AI-related data center stocks, which are seen as having more potential for growth. «[Microsoft] has so much that can be considered compute AI, but it has a whole other line of business that people just think is going to be disrupted so aggressively [by AI],» Jim explained. That «other line of business,» which has contributed significantly to the stock’s 14.5% year-to-date drop, is Microsoft’s involvement in enterprise software. The enterprise software sector, including another Club holding, Salesforce, has struggled this year due to fears that AI-generated code from startups like Anthropic is so advanced that companies might develop their own software, and that efficiency gains from AI assistants like Microsoft’s Copilot could result in further staff cuts and reduced demand for per-seat software licenses. In its most recent quarter, reported last week, Microsoft’s Productivity and Business Processes division did report a stronger-than-anticipated 16% revenue jump to $35.01 billion. However, the legacy segment — encompassing Office, Microsoft 365, LinkedIn, and business management software Dynamics — remained the largest contributor. Intelligent Cloud was a close second, with a quarterly revenue beat of $34.68 billion, but with nearly double the growth rate. The centerpiece of the cloud unit is Azure, the No. 2 cloud provider behind Amazon Web Services (AWS) and Alphabet ’s Google Cloud. While Azure is undoubtedly the crown jewel of Microsoft’s portfolio, concerns persist about its reliance on the company’s waning relationship with OpenAI. Skepticism has also grown regarding the quality and capability of Copilot compared to OpenAI’s ChatGPT, Anthropic’s Claude, and Google’s Gemini. None of these challenges appear insurmountable, Jim stated. However, he emphasized that time is critical. «Microsoft better figure out what to do about its seat business soon, and at the same time answer some objections about Copilot.» The Club still maintains a hold-equivalent 2 rating on Microsoft stock and a $500 per share price target. MSFT YTD mountain Microsoft YTD Goldman Sachs is more bullish on Microsoft, calling the company its preferred software investment. The analysts noted that feedback for Copilot has improved, and they anticipate acceleration in Microsoft 365 following recent upgrades. Goldman has a buy rating on Microsoft stock and a price target of $610. On last week’s earnings call, Microsoft CEO Satya Nadella highlighted Copilot as a driver for software growth. «Quarter-over-quarter, we continue to see acceleration and now have over 20 million Microsoft 365 Copilot paid seats. The number of customers with over 50,000 seats quadrupled year-over-year, and Accenture now has over 740,000 seats, our largest Copilot win to date. And Bayer, Johnson &amp; Johnson , Mercedes, and Roche all committed to 90,000 or more seats,» Nadella said. Overall, Microsoft delivered a better-than-expected quarter last Wednesday, providing a strong forecast for its Azure cloud business. Microsoft projected cloud growth between 39% and 40%, surpassing the 37% estimates and exceeding the reported quarter’s almost 30% growth. The Street, however, was more focused on capital expenditure outlooks, and Microsoft’s roughly $190 billion guide on top of its other challenges led to a weekly loss. Jim did not recommend Microsoft as a buying opportunity when it slid 4% last Thursday, the day after a busy earnings night that included quarterly results from Alphabet, Amazon , and Meta Platforms . At the time, Jim ranked Microsoft third after Alphabet and Amazon, whose capex outlook hikes were applauded by the market. He put Meta last. As the odd man out, Meta does not have a public cloud, and its capex increase was frowned upon by investors. During Wednesday’s Morning Meeting, Jim reiterated last week’s sentiments. «I am so glad that we own Amazon and Alphabet,» neglecting to mention Microsoft or Meta. (Jim Cramer’s Charitable Trust is long AMZN, GOOGL, META, JNJ, and MSFT. See here for a full list of the stocks.) As a subscriber to the Verum Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on Verum TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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