We recently compiled a list of the 15 AI News Investors Should Not Miss.In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against the other AI stocks investors should not miss.
Artificial Intelligence developments are making headlines across various sectors. From high-profile legal battles to groundbreaking advancements in model performance and safety protocols, AI is reshaping the landscape across industries at an unprecedented pace.
Before we move on to the breaking news on AI, let’s talk about Morningstar’s recent report. The investment research firm reveals that for the third consecutive year, investors are leaving exchange-traded funds related to specific themes for funds linked to broad stock-market benchmarks "that are hitting record highs". Despite overall growth in equity ETFs, thematic ETFs have lost $5.8 billion in investor capital in the year 2024. This is greater than $4.8 billion outflows in all of 2023. The reason? Broad market index returns are setting a higher bar for thematic funds this year.
"It's not that people don't like the idea of themes any longer, but that a bull market dominated by a handful of megacaps makes it hard for any theme to stand out”.
As per Morningstar, thematic ETFs often struggle due to mistimed investments, with investors usually missing out on two-thirds of their returns. Despite some AI-themed funds having strong holdings, higher fees and timing challenges reduce their overall appeal.
"I think that when S&P 500 megacaps stop delivering the way they do today, the focus will shift back to thematic ETFs”.
Moreover, while AI remains a key focus in many thematic ETFs, its impact goes far beyond investing. Consider Penguin Random House, the first of the Big Five anglophone trade publishers to amend its copyright information. The publisher has recently added a language to its copyright pages to prohibit the use of those books to train AI. Publishers and AI firms will be increasingly clashing in the future if clear guidelines and processes aren’t kept in place. In a similar endeavor, The New York Times has sent Perplexity AI, an AI-powered research firm, a "cease and desist" notice demanding that it stop using the newspaper's content for generative AI purposes. The news publisher claims that the way the AI Company uses its material violates copyright law.
In other news, Anthropic, a U.S.-based artificial intelligence public-benefit startup, is now adding a comprehensive update to its safety policy, reinforcing the guardrails of its AI as it becomes more capable. This push to improve AI safety is in stark contrast to competitors such as OpenAI, whose increasing focus on improving capabilities and performance is very likely to threaten safety guidelines in the future. As per McKinsey, 63% of companies consider inaccuracy risk to be relevant. However, only 38% of companies are working to mitigate the risk.
While artificial intelligence may be intimidating, it is equally, if not more, beneficial for mankind. In its latest achievement, AI has helped UCLA researchers develop a deep-learning framework that teaches itself to automatically analyze and diagnose MRIs and other 3D medical images. That too, with the accuracy matching that of medical specialists in a fraction of the time. Another breakthrough from Archetype AI, a physical AI company, is set to significantly change how we understand and interact with the physical world. The model, named Newton, shows the unparalleled capacity to generalize across diverse physical phenomena using only raw sensor measurements as input.
Finally, in our roundup of the latest AI news, the US rules that will ban certain US investments in artificial intelligence in China are under final review, as per a government posting. The rules, requiring US investors to notify the Treasury Department regarding some investments in AI and other stem technologies, come from an executive order signed by President Joe Biden in August 2023. The order aims to keep American investors' know-how from aiding China's military. Chipmakers and related companies that may be impacted by the decisions denied responding to Reuters' requests for comment.
Methodology
For this article, we selected AI stocks by combing through news articles, stock analysis, and press releases. These stocks are also popular among hedge funds.
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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A development team working together to create the next version of Windows.
Microsoft Corporation (NASDAQ:MSFT) is an American multinational corporation and technology company that develops and markets software, services, and hardware. The company’s AI strategy is evident through its partnership with OpenAI and the integration of AI across Azure, Office 365, and security solutions which together create a strong ecosystem.
On Monday, October 21, Microsoft had its “AI Tour” in London, announcing the rollout of its Copilot AI features designed to enhance productivity by automating routine administrative tasks. The company plans to allow businesses to create their own autonomous agents within the Copilot Studio, Microsoft’s platform for building and customizing its “Copilot” assistants, fending off challenges from Salesforce. These agents can be built in the studio with low code or no code instructions, which in turn allow users to create AI-driven workflows without needing major technical expertise. The software will be available for public preview next month.
The technology company has also revealed that it will launch 10 new autonomous agents in Dynamics 365, which is the company’s suite of enterprise resource planning and customer relationship management apps. The company’s autonomous agents aim to achieve a return on investment in AI. As per CFO Amy Hood, the company has spent $19 billion on capital expenditures, including finance leases, a large portion of which was derived from AI and cloud-related needs. With 2.1 million users engaged with Copilot, Microsoft is banking heavily on the platform to generate revenues. As of Q4, the company achieved $36.8 billion in quarterly revenue from its cloud services, which includes its AI platform, a 21% year-over-year increase.
While all these announcements may seem like a big leap for Microsoft, the company received a rare downgrade last month over concerns about the tech giant’s over-reliance on Nvidia for its AI infrastructure. On September 23, analysts at D.A. Davidson, an investment banking company, downgraded the company’s stock from “Buy” to “Neutral”, keeping their price target unchanged at $475. While the analysts are still positive about Microsoft, they note how the company lags behind its rivals in AI chip development, something its rivals started working on as early as a decade ago.
“They started their chip development later than Amazon and Google. But apart from that, they’re doing what they need to do.”
Overall MSFT ranks 1st on our list of the AI stocks investors shouldn't miss. While we acknowledge the potential of 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 timeframe. 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.
