We recently compiled a list of the Don’t Miss Out: Jim Cramer’s 10 Key Stocks to Watch. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against Jim Cramer’s other key stocks to watch.
In a recent episode of Mad Money, Jim Cramer traveled to Dreamforce, to understand the true capabilities of artificial intelligence (AI) and to separate fact from hype. After diving deep into the topic, he feels more equipped to identify which AI claims are genuine and which are simply marketing fluff. He noted that there seems to be far more misleading information than real advancements.
“All right, I had to come all the way out here to Dreamforce, the Salesforce Tech Festival, to learn what artificial intelligence is really capable of and what’s pure hype. After immersing myself in AI, I feel a lot more confident in sorting out the real from the phony. And you know what? There’s a hell of a lot more phony than there is real. That’s why I want to show you which AI claims are meaningless and which ones are legit.”
Unlocking Profit Potential with Lower Rates and AI
Jim Cramer stated that today’s market movements show it’s possible to navigate unpredictable conditions. He emphasized that we don’t need expert predictions to see that interest rates are likely to decrease, which is essential for maintaining a bull market. He advised against overthinking the situation and suggested focusing on profitable opportunities, particularly the growing importance of artificial intelligence.
“Today is proof that you can game the ungameable. But you don’t need a San Francisco weatherman to know which way the wind blows. In the end, we know rates are headed lower, not higher, and that’s what we need to sustain this bull market. Please do not overthink it. I’d rather focus on what can help us make some money, like the biggest theme in the world right now: artificial intelligence.”
Cramer pointed out that while AI is generating excitement in the stock market, its impact on the broader economy has been limited. There are some practical applications, like cost savings in corporate back offices, but nothing particularly groundbreaking. This is why many analysts are starting to label the hype around AI as a bubble.
“Specifically, what does AI actually do? We’ve heard so much about this technology and how it’s going to revolutionize everything. Right now, though, we know that while AI has taken the stock market by storm, it really hasn’t taken the actual economy by storm. There are use cases, sure, back office corporate cost savings—nothing flashy. That’s why so many commentators now come on air and call the whole thing a bubble.”
Jim Cramer explained that AI, especially when combined with advanced computing from chipmakers, significantly speeds up processes and enables machines to act intelligently, similar to capable humans. He noted that businesses aim to create quality products for consumers, but a shortage of workers has become a major issue, particularly highlighted during the COVID pandemic. This has led to sales associates being too busy to engage effectively with customers, resulting in rushed and confusing interactions.
“Let me tell you what AI really does. When coupled with accelerated computing, AI makes everything go faster. It rationalizes processes and can make machines behave like smart, good humans. Business wants to produce good products and sell them to real people, whether for enterprises or homes—that’s capitalism 101. But right now, we don’t have enough workers to do it.
That became apparent during COVID. We can’t interact effectively because our sales associates are too busy to be anything but brisk or confused. They’re harried from the moment they come in to the moment they leave. It’s a late-stage capitalist directive. What can I say? What doctor has time to talk to you? What nurse practitioner can give you the time of day?”
Transforming Customer Service with Superior AI Agents
Cramer pointed out that companies are pushing their employees hard to boost profits, which can create a stressful environment. However, after attending Marc Benioff’s keynote, he recognized the potential of a technology called Agent Force. This AI initiative can engage with customers politely, and efficiently answering common questions by using personalized data.
Cramer argued that AI is an ideal solution for customer service, as it can provide clear and friendly assistance without the frustrations that often come from human employees who are overwhelmed and eager to leave. AI agents can listen, reason, and either direct customers appropriately or handle their inquiries on their own.
“Companies are already squeezing as much as they can out of their employees to boost stock prices and profits for executives. Then it hit me while watching Marc Benioff’s incredible keynote today. He described an initiative called Agent Force, and I realized what this technology can really do. It has time for you, acknowledges you, and is polite. It can almost always answer your questions because there are only so many that get asked regularly, and it has the data to respond your data. It knows your preferences.
This is the perfect way to handle customer interactions instead of relying on humans who can be unclear, impatient, or exhausted. Humans are, well, human, harried and ready to go home. But machines infused with AI are delightful, smart, and engaging. They don’t mind going to work, and that’s where these AI agents come in. The machines can listen, reason, and either direct you to the right place or handle everything themselves.”
Jim Cramer explained that AI offers a better experience than what we currently have. For instance, in retail, AI knows customer preferences, helps with returns, and suggests alternatives based on previous purchases, reducing the need to deal with human salespeople who might be stressed or impatient. If customers are still unhappy, they can opt to talk to a human, but they might prefer the friendly interaction with the AI agent.
“So, what AI really is and what it does is provide us with something better than what we currently have. It’s a retailer that knows all about your preferences, can help you return an item, and asks if you want something different from what you bought last time. It frees you from the hassle of a human salesperson who might be frustrated or upset. And if you’re not satisfied, you can still speak to a human if you want to—but I doubt you will, because the AI agent is just so much more pleasant.”
Revolutionizing Everyday Life: How AI Outperforms Humans in Healthcare, Driving, and Beyond
Cramer added that AI’s potential extends beyond retail. He believes that in ten years, we might wonder why we relied on doctors when AI agents could provide kinder, more empathetic care. These AI systems could analyze millions of test results, quickly identifying serious health issues like melanoma, heart disease, or kidney cancer, making it easier to spot dangerous patterns before they become serious problems. AI’s ability to compile and analyze data effectively is key to this advancement.
“It’s not just retail. In ten years, I think we’ll wonder why we ever wasted a doctor’s time when AI agents were so much better, kinder, and more empathetic. Doctors could analyze millions of test results that might have taken a decade to sort through, identifying dangerous patterns well before they become problematic—like melanoma, heart disease, or kidney cancer. It’s all in the data, and only AI can compile it in an accessible way.”
Additionally, Jim Cramer pointed out that self-driving cars are becoming more common and are significantly safer than human drivers since they don’t get distracted or impaired. He noted that AI can also handle tasks like proofreading and correcting errors without making mistakes. This efficiency allows law firms to operate with fewer associates.
“We see self-driving cars everywhere. They’re much safer than human drivers. They don’t drink and drive—they don’t even drink. An AI agent can proofread, correct, and never make a mistake. Law firms can now hire half as many associates because of this efficiency”
Finally, Cramer emphasized that AI agents often perform better than humans in most situations. For repetitive tasks, he believes it’s preferable to interact with a courteous and efficient AI rather than a stressed or frustrated human who may not want to engage.
“The bottom line is that if you let the AI agent do its job, it will outperform humans in the vast majority of cases. And for repetitive tasks, trust me: you’d much rather have a polite and friendly AI agent than a harried, angry, or exhausted human who really doesn’t want to deal with you.”
Our Methodology
This article summarizes Jim Cramer’s latest Morning Thoughts, highlighting ten key stocks he reviewed. We ranked them by hedge fund ownership, from the least to the most owned.
At Insider Monkey we are obsessed with 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)
Number of Hedge Fund Investors: 279
Jim Cramer reported that Microsoft Corporation (NASDAQ:MSFT) has announced a 10% increase in its quarterly dividend and approved a new $60 billion stock buyback program. Morgan Stanley analysts noted that this dividend increase aligns with similar boosts over the past nine years, while Deutsche Bank commented that the plan shows management’s commitment to profitable growth.
“Club name Microsoft announced a 10% increase in its quarterly dividend and approved a new $60 billion stock buyback program. Morgan Stanley research analysts said the dividend boost is in-line with increases over the past nine years. Deutsche Bank said the plan signals that management is “committed to profitable growth.”
Microsoft Corporation (NASDAQ:MSFT) is supported by its strong earnings, impressive growth in cloud services, and advancements in AI technology. In its latest quarterly report, Microsoft Corporation (NASDAQ:MSFT) reported $56.19 billion in revenue for Q4 2023, driven by increasing demand for its cloud offerings, especially Azure, which continues to lead the enterprise cloud market. This strong position is vital for long-term growth.
Moreover, Microsoft Corporation (NASDAQ:MSFT) is actively investing in AI, incorporating features like Copilot into Office applications, which improves its products and creates new revenue opportunities. Partnerships, such as with OpenAI, enhance its AI capabilities further. Additionally, Microsoft Corporation (NASDAQ:MSFT)’s diverse range of products, including Xbox and LinkedIn, adds stability and growth potential across different sectors.
Microsoft Corporation (NASDAQ:MSFT)’s plans to expand its AI services and invest in data centers show its commitment to addressing the rising demand for cloud solutions. Together, these elements place Microsoft Corporation (NASDAQ:MSFT) in a strong position for future growth, supporting a bullish outlook on its market potential.
Alger Spectra Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is a beneficiary of corporate America’s transformative digitization. The company operates through three segments: Productivity and Business Processes (Office, LinkedIn, and Dynamics), Intelligent Cloud (Server Products and Cloud Services, Azure, and Enterprise Services), and More Personal Computing (Windows, Devices, Gaming, and Search).
During the quarter, shares contributed to performance after the company reported strong fiscal third quarter results, underscoring its leadership position in the cloud and highlighted its role as a primary facilitator and beneficiary of AI adoption. Company revenue growth, operating margin, and earnings growth surpassed consensus expectations. The utility scale Azure cloud business grew 31% in constant currency of which 7% was AI related versus 3% two quarters ago.
Further, management noted most of the AI revenue continues to stem from inference rather than training indicating high quality AI applications by Microsoft’s clients. Management also indicated that the significant cost-cutting programs in corporate America are done, suggesting that the cost optimization headwinds previously impacting Azure’s growth are over.
Separately, management provided color on their new AI-productivity tool, Copilot, noting that approximately 60% of Fortune 500 companies are already using Copilot, and that the quarter witnessed a 50% increase in Copilot assistance integration within Teams. We continue to believe that Microsoft has the potential to hold a leading position in AI, given its innovative approach and demonstrated high unit volume growth opportunity.”
Overall MSFT ranks 2nd on our list of Jim Cramer’s key stocks to watch. While we acknowledge the potential of MSFT as an investment, our conviction lies in the belief that under the radar 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.
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Disclosure: None. This article is originally published at Insider Monkey.